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Note of Rupee fall and sentiments

Rupee fall has gripped the imagination of everybody now. People who were least bothered about FX are now asking for opinions or in some cases giving opinions. It’s good that the effects of the policy-paralysis of the government are finally being felt and are out in the open for everybody to see.

For long time government has fiddled and pretended everything was fine. Thankfully, that mask has fallen off.

There are two objectives of this post:

1. To state my opinion on RBI's action
2. To give my opinion on the Rupee depreciation


RBI

If you have been reading here, you well know where my bias lies. IMO, RBI is doing a good job. It is letting the market take its course, which should have happened a long time back. What however is a bother is a speed and quantum of depreciation is such a short time. 20% depreciation within a month is a bad management.

To be fair, RBI was never in a position to handle these kinds of outflows. And it was clear to everybody, and RBI themselves have stated on many occasions, that forex reserves should not be used for currency interventions. The total quantum of “intervention funds” at maximum levels was never more than $15-18billion.

What RBI is doing is actually a smart thing i.e. staying away from the running train. It is not trying to put good money after bad trying to achieve an impossible task. Any intervention will only drain the reserves with no benefit for anybody.

The only concern is the speed at which the Rupee is depreciating. Having seen some of the treasury departments of the companies, I can assure you many of these are lethargic dinosaurs. They do not move quickly. They do not hedge or take decisions quickly. There is too much red-tape in these companies to actually help in hedging forex flows. I am, therefore, pretty sure, most of these slow companies will have to take a big hit or will try to start acting (if they have already not started.)

 
Blame the government

I am not going to waste my breath on this. Entire rain forests have been chopped detailing the stupidity of the present government.


Rupee Depreciation

First off, depreciation is not bad. It’s the markets' way of adjusting to the new circumstances. Yes, there are implications both short term and long term. Some of it may be foreseen, some unforeseen.

Blanket bashing of Rupee is uncalled for. Rupee is just reflecting the underlying fundamentals of the economy and is actually helping in adjusting the economy to new reality.

Using vulgar expressions and absurd sentiments to highlight the Rupee fall is totally uncalled for. Yes, it is sad that we are in this situation, but that is not the fault of Rupee. My hope is that this distinction is clearly understood, because only then you will be able to look at the bright side of the currency depreciation.

Good Luck

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