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6.6 per cent depreciation in exchange rate likely
By Alok Mukherjee
NEW DELHI, JUNE 12. The rupee breached the Rs. 47-to-a-dollar
mark today, and the economic think-tank, National Council for
Applied Economic Research, has said the exchange rate could see
an annual average rate of depreciation of 6.6 per cent during the
current fiscal.
According to the NCAER, the estimated 6.6 per cent depreciation
of the rupee vis-a-vis the U.S. dollar is expected to maintain
the Real Effective Exchange Rate (REER) at the current level. The
REER reflects the desirable exchange rate of a currency vis-a-vis
other major international currencies, based on the prevailing
level of inflation and other related parameters.
The Reserve Bank and the Finance Ministry seem to have agreed
that the rupee should find its level vis-a-vis other
international currencies in terms of the REER and have refrained
from intervening in the market on any significant scale despite
the gradual weakening of the domestic currency in recent weeks.
Though this position has not been put out officially, the RBI and
the Finance Ministry feel that intervention in the market would
be undertaken only to curb volatility in the exchange rate or to
meet any temporary mis-match in demand and supply because of
sudden spurts in demand.
The Finance Ministry makes an internal assessment of the likely
depreciation of the rupee vis-a-vis international currencies
while drawing up the annual budget. This is necessary for
forecasting likely revenue inflows on the customs account and
also the possible size of the import bill for essential imports.
On an average, a five per cent depreciation is normally assumed
every year.
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