India's stronger currency has become a threat for its growth aspirations, piling pressure on the central bank to aggressively intervene in the foreign exchange market even at the risk of incurring the wrath of the United States, reports Reuters.
The rupee has risen more than 6 per cent this year against the dollar, snapping six consecutive years of depreciation, with the impact magnified by the decline of many competitors’ currencies against the greenback over the same period.
That is weighing on an economy that is struggling to cope with disruption caused by ambiguous rules of a recently launched Goods and Services Tax (GST), and has yet to fully recover from Prime Minister Narendra Modi’s crackdown on “black money”.
While the rupee’s surge is being driven by strong capital inflows lured by India’s economic and political stability, it is making the country’s exports less competitive and is also driving up imports, prolonging a slump in manufacturing.
An exports slowdown dented GDP growth by 2.6 percentage points in the last quarter. Overall economic expansion cooled to 5.7 per cent in the June quarter, data released on Thursday showed, its slackest pace in more than three years.
“(The) rupee is now really hurting growth,” said Pronab Sen, the former Chief Statistician of India and now a country director for think-tank International Growth Center.
“It is about time India does something about it, else we will have to brace ourselves for an extended spell of weak growth,” he added.