Following the sharp appreciation in both the US dollar and the Euro against the rupee at the beginning of 2023, BoM fined banks and applied pressure on them to manage the exchange rate. The rupee has thus officially been appreciating against the Euro from mid March to Sep 23, and the also against the USD from mid March to end Dec 23.
The rupee has however again started depreciating against the Euro by over 5% since Oct 23 till now. and also weakened against the USD by around 3% since the beginning of 2024. THIS AUGURS BADLY FOR INFLATION IN THE FIRST HALF OF THIS YEAR.
BoM is trying to hoodwink the population by claiming that forex reserves are abundant, and is even buying forex on the market. BoM also published yesterday a special note on gross tourism earnings, to emphasize growth from Rs65 bn in 2022 to Rs 86 bn in 2023.
The comparison should be with a pre-Covid year, namely 2019, with gross tourism earnings of about the same figure as in 2022, or Rs 63 bn. Gross tourism earnings have increased by 36% between 2019 and 2023 in Rupees, largely on account of rupee depreciation of about 25%. but by only 11% in USD from USD 1.7 bn in 2019 to USD 1.9 bn in 2023, or by only USD 200 mn.
This improvement in tourism earnings in USD has hardly made a significant dent in the much higher forex demand for imports, which is why the forex shortage persists despite higher tourism revenue. BoM has been borrowing forex heavily from local banks as from end Dec 23.
