Why action on rupee, oil won’t be ‘knee-jerk’ anymore

Why action on rupee, oil won’t be ‘knee-jerk’ anymore

Amid a weak rupee, pricey crude oil and widening current account deficit (CAD), the ‘no need for a knee-jerk reaction’ response has finally given way to ‘we may announce something soon’ noises.

The government is reportedly going for a ‘planned review’ of the economy by Prime Minister Narendra Modi this weekend. As a result, on Wednesday, the rupee rallied the most in 18 months, strengthening as much as 1.1 per cent to 71.92 per US dollarafter hitting a new low of 72.91 in early trading. It closed up 0.7 per cent at 72.18. Sensex rebounded as much as 0.9 per cent to rise 305 points and benchmark 10-year bond yields dropped five basis points to 8.13 per cent.

“There are dangers in using the overvaluation argument to not support the rupee when it is hitting multiple lows,” says an analyst. With August data on trade deficit unlikely to improve significantly and US Federal Reserve expected to hike interest rates this month, there could be more pain for the rupee.

On the brighter side, Turkey, from where rupee’s trouble started a month ago, has seen its currency gain close to 3 per cent in the last week. Read More

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