Continued weakness in rupee: Mecklai Graph

Mecklai graph of the day: Continued weakness in rupee

The rupee has been spiraling down since recent past and a pause to this cannot be predicted. Dollar has not managed to surge as much internationally to validate such a heavy depreciation in the INR. So what is actually driving the southern journey in the domestic currency?

Well, the sustained plunge can be attributed to the following factors:
• Heavy selling of debt by FIIs.
• Reduction in Fx reserves with the central bank.
• Comment from RBI Governor Duvvuri Subbarao that the central bank intervenes in the market only to manage volatility.
• RBI has been buying in the past 3 months.
• Larger CAD due to gold imports.
• Heightened expectations of an early retraction in QE before September quarter.

Any further decline in the rupee will have adverse macro and micro consequences. The depreciated level of the local currency has decreased the chances of policy rate cut by RBI on July 17th meeting .Further the increasing Current Account Deficit Gap poses a dangerous situation for the Indian economy.

The below graph shows the fall in rupee since January 2013.

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