Quote on Rupee 04 July 2022 By Ms. Sugandha Sachdeva, VP- Commodity & Currency Research, Religare Broking Ltd
The Indian rupee is reeling under pressure on the back of a rise in the dollar index towards a multi-decade peak, incessant portfolio outflows, soaring crude oil prices, and a rising interest rate regime. Besides, the rise in crude prices is leading to a lot of concerns about widening CAD, which is weighing on the rupee-dollar exchange rate..
So to limit the decline in the Indian rupee which has depreciated by around 6.37% YTD, the government has imposed a windfall tax on domestic crude producers, imposed new levies on the export of petrol, diesel, and aviation turbine fuel (ATF), and hiked import duty on gold. Apart from the active intervention strategy by the RBI in the forex markets, these are further steps taken by the government through duty hikes to ease the pressure on the CAD and slow down the pace of currency decline. The country recorded a current account deficit of 1.2 percent of GDP in 2021-22 as against a surplus of 0.9 percent in 2020-21. Besides, the trade deficit has soared to record highs of $23.33 billion in May amid rising import bills.
Also, as there has been a shortage of fuel supplies for almost a month, the administration has taken a huge step to meet the rising domestic fuel demand and ensure an ample supply of petroleum products. This will eventually decrease the import of oil at a time when oil prices are holding steady around multi-year highs, on the back of sanctions imposed by western countries on Russian oil and outages from Libya. With this approach, the government will be able to fetch additional revenues as the Indian producers price their crude at international prices for sale to the domestic refineries, while making huge profits.
These collective steps are likely to boost domestic fuel supplies and increase the government's revenues while providing a cushion to the ailing Indian rupee, and we may see the domestic currency erasing some of the recent losses.
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