BoM’s failure to stabilise the rupee !

Since mid March 2023, banks have been told by BoM that the rupee should follow the Euro. As the Euro has appreciated against the US Dollar until end April 2023, the rupee remained stable against the Euro at just above Rs50.-, but appreciated against the US from Rs47.60 to Rs45.40 at end April 2023.

As from May 2023, the Euro changed course and started depreciating against the US dollar. The rupee has therefore also been depreciating against the US dollar from Rs45.40 to Rs 46.00 during May 2023 . The rupee did not stick fully to the Euro, but fell slightly against the Euro to Rs 49.60. The current rate of Rs46.00 per US dollar represents a depreciation of 3.6% since the beginning of 2023.

The revised BoM policy of a Euro rupee peg instead of a US dollar peg is not working to stabilize the rupee. . If the Euro depreciates further against the US dollar, the rupee will weaken more against the dollar, as long as the BoM continue their policy guidance of a Euro-rupee peg. Moreover, there is continued pressure on a weaker rupee vis a vis the dollar, since interest rates on rupee deposits are lower than on US dollar deposits.