Strong USD causing fall of other currencies, says IMF's Gopinath

New Delhi, October 17

Union Finance Minister Nirmala Sitharaman’s observation on the falling value of the rupee vis-a-vis the dollar has been upheld by the IMF’s Gita Gopinath and Pierre-Olivier Gourinchas, who have pointed out that the dollar is at its highest level since 2000, having appreciated 22 per cent against the yen, 13 per cent against the Euro and 6 per cent against emerging market currencies since the start of this year.

“Such a sharp strengthening of the dollar in a matter of months has sizable macroeconomic implications for almost all countries, given the dominance of the dollar in international trade and finance,” they said.

The US Dollar Index, which measures the dollar’s exchange rate against six major global currencies, has already surpassed its 20-year high and is currently trading at over 105 after beginning the year at 96.

“On average, the estimated pass-through of a 10 per cent dollar appreciation into inflation is 1 per cent. Such pressures are especially acute in emerging markets, reflecting their higher import dependency and greater share of dollar-invoiced imports compared with advanced economies,” they wrote. In India, this exposure is 80 per cent. The immediate panacea for several countries has been to offload dollars. As a result, total foreign reserves held by emerging market and developing economies fell by more than 6 per cent in the first seven months of this year.

India can at best lower its exposure to dollars while it watches a couple of macroeconomic developments have boosted the Dollar Index.