Is the rupee back to the ‘fragile five’ days of 2013?, Pg14

Key Highlights:

• The Indian Rupee hit a record low of 95.33 against the US dollar on Thursday.
• The rupee has depreciated by 12% against the dollar in the last 12 months.
• In 2013, the Indian Rupee was termed one of the "fragile five" currencies by Morgan Stanley.
• India's economy slid to the sixth rank in GDP size recently.
• Both the current account and capital account are in deficit for the past two years.

Detailed Insights:

• The rupee's sharp decline is reminiscent of September 2013, when it also fell 12% against the dollar between January and September.
• In 2013, the "fragile five" currencies, including the INR, IDR, BRL, ZAR, and TRY, were losing value due to the US central bank's rollback of its quantitative easing (QE) policy.
• A current account deficit occurs when a country imports more goods and services than it exports, while a capital account surplus indicates more money coming in through investments than going out.
• India's exports have not grown as fast as desired due to weak global demand and an inability to compete with countries like China, Vietnam, and Bangladesh in production efficiency.
• The capital account deficit is due to foreign investors avoiding Indian stock markets and net FDI turning negative, indicating Indians investing more abroad.
• To address the deficits in both current and capital accounts, the country has to draw down the foreign exchange reserves.

Key Concepts Involved:

• Quantitative Easing (QE): A monetary policy where a central bank injects liquidity into the economy by purchasing assets.
• Current Account Deficit: A situation where a country's imports of goods and services exceed its exports.
• Capital Account Deficit: A situation where financial investments by foreigners into a country fall drastically.
• Foreign Direct Investment (FDI): An investment made by a firm or individual in one country into business interests located in another country.