Weakening rupee

The rupee’s plunge to a record low, breaching the critical 86-per-dollar mark, has intensified concerns about a potential economic slowdown, widening trade deficit and straining of external balances. Driven by a strong dollar and surging crude oil prices, the rupee’s steepest fall since early 2023 has, as expected, put pressure on stocks and bonds. The rupee remains one of Asia’s most stable currencies, but the slide poses inflationary risks by driving up import costs. A combination of global and domestic pressures, the rupee has declined over 2 per cent since December. For importers, it spells an imminent challenge in managing inflation. Conversely, for exporters, it’s an opportunity to be more competitive. As the world prepares for Donald Trump’s presidency, his actions are likely to add uncertainty to global markets.

The depreciation of the rupee could defer expected rate cuts by the Reserve Bank of India. This despite the decline of retail inflation to a four-month low of 5.22 per cent in December, mainly on account of easing of prices in the food basket. It would be in national interest to not let politics dictate the future course. The message to remain calm should have accommodative space for contesting views on how to go forward to tackle the economic challenges. A wait-and-watch approach is on desired lines, along with a candid discussion about the state of the economy and the potential pitfalls.

A US-based firm has forecast that the rupee could weaken to 88 in the near-to-medium term. For the Opposition, it would be the most appropriate talking point as the Union Budget nears. Political contestations are par for the course, but the focus must be on working towards a broad consensus on how to withstand the ensuing strong winds of economic slowdown.