Breaking News
0
Ad-Free Version. Upgrade your Investing.com experience. Save up to 40% More details

Rupee Plunge Calls for Action as Currency Overvaluation Easing

ForexSep 12, 2018 01:50AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 

(Bloomberg) -- As the Indian rupee plumbs new depths, the currency’s overvaluation relative to the nation’s trading partners has been used as a justification for the relative inaction from policymakers.

There’s evidence now to show this argument is weakening. The nation’s 36-currency real effective exchange rate, or REER, was 114.54 in August, a two-year low, and down from 115.32 in July, according to data released Tuesday.

There are dangers in using the overvaluation argument to not support the rupee when it is hitting multiple lows, said Vishnu Varathan, head of economics and strategy at Mizuho Bank Ltd. in Singapore.

“Observable rupee shifts have far more impact on the psyche - including market psyche,” he said. “And it is hard -- and very expensive -- to catch falling knives once reflexivity sets in.”

The response of policy makers to the currency’s stumble has been rather muted compared with the big interest-rate defense seen in other countries with wide current-account deficits like Indonesia. “While the Reserve Bank of India has been intervening in the FX market, the size of recent intervention looks to be less compared to before,” Khoon Goh, head of research at Australia and New Zealand Banking Group Ltd. in Singapore, said Monday.

The RBI net sold $1.9 billion of foreign currency in July to support the rupee, data Tuesday showed. This week’s currency selloff, which has nudged the rupee toward 73 per dollar, has led to an increase in chatter on the possible steps likely from the central bank, including raising money from overseas Indians.

The depreciation has more or less accounted for the overvaluation seen in the past two-to-three years, according to Kotak Mahindra Bank. The rupee has slid about 15 percent against the dollar from the taper-tantrum period in 2013, significantly less than other big emerging markets, the lender said in a note.

“On REER basis, the INR remains overvalued against long-term average though it has come down from its highs,” economists Suvodeep Rakshit and Upasna Bhardwaj wrote.

The rupee is Asia’s worst-performing currency this year, and its one-month volatility is at levels last seen in 2015, data compiled by Bloomberg show.

Rupee Plunge Calls for Action as Currency Overvaluation Easing
 

Related Articles

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
or
Sign up with Email