Weakening rupee against dollar

Rupee at all time low against the dollar

Today’s very important news on all business channels are that rupee has trading all time low against dollar. Every analyst wants to know that what is the reason behind this weakness of rupee and how would it impact on overall economy. The rupee has been falling for five straight weeks. Right now it is at 57.92.

According to analysts, there may be many reasons for this weakness. According to my view, the widening trade deficit of our economy is the prime reason for this slide. However, government is struggling to control it but has not got succeed till now.

There is overall consensus among the masses that the UPA government is not likely to implement the reform programme. It is unlikely for this government to generate heavy capital inflows for reform the economy. Oil and gold imports bill are still worry factor for deficit.

Foreign Institutional Investors are selling index future for hedging their stock position. It is again expectation of weakness in the stock market in near term. The main reasons behind this slide of rupee are weak economic fundamental and widening trade deficit.

Exporters like IT firms will gain from this rupee weakness as these firms earn majority of revenue in dollar term. This weakness would also give some support to falling gold prices. The gold prices has been down in rupee term 15% during 2013.

It is bad for the student who wants to go abroad for higher education. It will increase India’s current account deficit as oil companies will pay in dollar term. As of now, the global prices of oil are falling so not near term threat for price hike. The companies who import the raw material would be affected by this weakness of rupee.

For more detail about any other query related investment, you can contact me through my email.

Regards,

Arvind Trivedi

Certified Financial Planner

arvind.trivedi79@gmail.com

RBI Monetary Policy Review

Appropriate Decision on rate cut by RBI

Yesterday all market analysts, government, and economist was eagerly waiting for  monetary policy review by Reserve Bank of India (RBI).  In my personal opinion RBI governor has done fantastic job. I congratulate him for doing balancing act although it is very tough task in present context. The finance minister is not happy yesterday’s RBI monetary policy review and has decided to go alone on reform agenda.  At the second quarter review of the FY2013 monetary policy the RBI reduced the cash reserve ratio (CRR) by 25 basis points to 4.25% but kept the policy rates unchanged. Due to the uneasy inflation and uncertainty in the commodity prices driven by global liquidity the central bank continues to hold the policy rates. 

According to the RBI, the inflation rate could moderate towards the beginning of 2013 quarter and after that the policy rate may easy. RBI has also revised the GDP (Gross Domestic Product) and inflation target 5.8% and 7.5% respectively. The RBI had two choices here whether he choose growth or choose inflation. No doubt growth has also declined when we compare it with other countries. It is clear that RBI much concern about control the inflation and in other words say, RBI governor is fighting against inflation. I also believe that bringing down inflation is necessary for sustaining our medium-term growth.  Why is inflation remain uncomfortable during entire UPA government tenure.  After analysing this there are two main reasons come out. One if inflation is due to supply side problem and higher interest rate are not going to help it easy. The other reason is increasing spending power of the people. The people are more spending on food and change in consumption patterns. It is also the main reason for inflation. Whether supply is less or demand is high it is the crucial assessment.

Obviously it is the complex challenge of supporting growth and control inflation for RBI. The CRR cut is to make sure that there is comfortable liquidity to allow the credit to go into productive sectors and that liquidity is in deficit, but that deficit is small enough for transmission to take place. Managing inflation is as important as the growth. If we success to achieve low and stable inflation then consumers and investors can make informed decisions.  Fpr investor stable inflation will ensure their  medium term growth. It may be possibly because our currency exchange rate is depreciating and possibly because we have a higher fiscal deficit. So there are number of reasons our country is having high inflation in our growth model.

From government’s newly provided roadmap of reforms till 2017 the RBI has got some comfort on the fiscal figure. We expect the RBI will reduce the CRR rate by another 50 basis points and also cut the key policy rates by the same measure in the remaining part of the fiscal year. 

If you have any query regarding investment please feel free to ask.

Regards,

Arvind Trivedi

Certified Financial Planner

arvind.trivedi79@gmail.com