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Experts Say Rupee To Fall Further, All Eyes On RBI Measures

By LokMarg 7th October 2022

With increasing oil prices weighing on traders’ sentiments, the rupee plunged to an all-time low of 82.22 against the US dollar in morning trade on Friday. Depending on the rising crude oil and US payroll data, the US Federal Reserve’s stance on monetary policy could also be determined. The rupee had closed at 81.88 in the previous session.

Manoranjan Sharma, chief economist, of Informerics Ratings, said, “the Indian rupee vis-a-vis the US dollar fell 3 percent over the last six sessions to nearly Rs 82.50 versus the dollar. There are both global and domestic factors responsible for this fall. The global headwinds include heightened uncertainties post the Russia-Ukraine war and consequently, risk-aversion and flight to safe havens.”

“Macroeconomic factors include sluggish growth, high inflationary pressures, rising trade deficit, current account deficit, fiscal deficit and foreign investors withdrawing money from the Indian markets together with limited scope for the RBI’s intervention because the forex reserves have fallen from US dollars (USD) 642 billion to USD 540 billion.” He added: “We see India’s current account deficit to be about 3.3 to 3.4 percent of GDP this year. There is a need for close monitoring and vigil on this score,” Sharma said.

Exporters should not be allowed to keep USD earnings beyond five days. The interest rate on NRI (foreign currency) account needs to be increased, Sharma opined, adding that the import duties on non-essential items needed to be increased.

Banks need to be advised by the RBI to start special USD-fixed deposits drive for a maturity ranging from 6 months to 2 years, with enhanced interest rates.

Aditi Singh, economist, at the Bank of Baroda, said, “This was mostly like a reflection of the US data that came out yesterday. There is an anticipation that the US payrolls report will come today leaving some nervousness in the market. The dollar is continuing to strengthen because of that, and that is the reason we are seeing pressure on other currencies. 82 level is breached and we probably see the rupee moving towards 82.5 to 83 level.”

“In comparison to currencies of advanced economies, the rupee had relatively performed relatively better. So, if you see the advanced economies like the yen or the euro or the pound, these currencies have depreciated much more and when you compare it even with the strength in the dollar index, the dollar has appreciated by close to 20%. So, INR has performed relatively more rational, more strength than other currencies and that is because of the strong domestic fundamentals of the Indian economy that is reflected,” Singh said.

No Let-Up In Rupee Depreciation; Touches Another Lifetime Low

By LokMarg 26th September 2022

Continuing with the depreciation, Rupee slipped further from the past week’s low and hit another lifetime low on Monday morning. This consistent depreciation follows the ongoing strengthening of the US dollar index for a two-decade, on hopes that demand for safe-haven currency such as the dollar would pick up.

This morning, it crossed 81.50 against the US dollar. On Friday, it closed at 81.25. Notably, last Thursday’s depreciation was the biggest single-day fall for the rupee since February 24.
The latest monetary policy tightening by the US Federal Reserve also lent support to the dollar, thereby weakening other major currencies globally, including India’s rupee.

“The panic is created by the dollar index which witnesses strong buying as a strong hedge against interest rate hikes and inflation cycle. The rupee downtrend will continue as long as positive triggers are not witnessed from the inflation forefront. The next trigger for the rupee next week is the RBI policy which shall provide some respite to the rupee fall. Rupee range can be seen between 80.50-81.55 before RBI policy,” said Jateen Trivedi, VP Research Analyst at LKP Securities.

For the record, the US Federal Reserve had raised the repo rate by 75 basis points — which is the third consecutive hike of the same magnitude, in line with expectations, which essentially means that investors will move towards the US markets for better and stable returns amid the monetary policy tightening. The Fed also hinted that more rate hikes were coming and that these rates would stay elevated until 2024.

The US central bank seeks to achieve maximum employment and inflation at the rate of 2 per cent over the long run and it anticipates that the ongoing hikes in the target range will be appropriate. Raising interest rates is a monetary policy instrument that typically helps suppress demand in the economy, thereby helping the inflation rate decline.

Consumer inflation in the US though declined marginally in August to 8.3 per cent from 8.5 per cent in July but is way above the 2 per cent goal.

Meanwhile, India’s forex reserves are at a two-year low. The reserves have dropped by almost USD 80 billion since the escalation of the Russia-Ukraine tensions into war earlier this year

India’s forex reserves have been consistently depleting for the past few months because of RBI’s likely intervention in the market to defend the depreciating rupee and for the country’s trade settlement. This depletion is yet another possible reason the rupee has been weakening.

Typically, the RBI intervenes in the market through liquidity management, including through the selling of dollars, with a view to preventing a steep depreciation in the rupee. A depreciation in the rupee typically makes imported items costlier.

For fresh cues, investors await RBI’s upcoming monetary policy outcome. As per schedule, the next three-day monetary policy meeting will be held during September 28-30. (ANI)

The American Heist In Afghanistan

By Asad Mirza 16th February 2022

US President Joe Biden last week signed an executive order, splitting $7 billion Afghan funds deposited with the Federal Reserve. Afghanistan will now only get $3.5 billion as part of the humanitarian aid while the remaining $3.5 billion will be given to 9/11 victim families in the US.

Afghanistan has about $9 billion in assets overseas, including the $7 billion in the United States. The rest is mostly in Germany, the United Arab Emirates and Switzerland banks. International funding was stopped and Afghan money was frozen after the Taliban seized power in Afghanistan last August. The Taliban expectedly have expressed anger over United States’ move and have sought to unfreeze all funds.

Taliban spokesman Mohammad Naeem said on Twitter that the theft and seizure of money held or frozen by the United States of the Afghan people represents the lowest level of human and moral decay of a country and a nation.

On Saturday last, the Afghan central bank — known as Da Afghanistan Bank — demanded in a statement that the Biden administration reverse its decision.

The move has also elicited angry responses from the Afghan public; there have been a series of angry demonstrations in Kabul, with common Afghani seething in anger over the US move.

Expert’s criticism

The decision has also drawn criticism from human rights groups, lawyers and financial experts who have warned that the move could gut the country’s central bank for years to come, crippling its ability to establish monetary policy and manage the country’s balance of payments.

Experts also said that the $3.5 billion set aside for humanitarian assistance would do little good unless the United States lifted restrictions on the Afghan banking system that have obstructed the flow of aid into the country.

John Sifton, the Asia advocacy director at Human Rights Watch, said in a statement that the decision would create a problematic precedent for commandeering sovereign wealth and do little to address underlying factors driving Afghanistan’s massive humanitarian crisis.

Torek Farhadi, a financial adviser to Afghanistan’s former US-backed government, questioned the UN managing Afghan Central Bank reserves. He said those funds are not meant for humanitarian aid but “to back up the country’s currency, help in monetary policy and manage the country’s balance of payment.” He also questioned the legality of Biden’s order and said that these reserves belong to the people of Afghanistan, not the Taliban … Biden’s decision is one-sided and does not match with international law, no other country on Earth makes such confiscation decisions about another country’s reserves.

ALSO READ: China Looks For A Toehold In Afghanistan

Some analysts also took to Twitter to question Biden’s order. Michael Kugelman, deputy director of the Asia Programme at the US-based Wilson Centre, criticised the scheme to divert funds from Afghanistan in a tweet.

Pakistan has also condemned the decision. Pak Foreign Office spokesperson Asim Iftikhar has called for the complete unfreezing of Afghanistan’s assets.

As reported by GeoTV, he said it is imperative for the international community to quickly act to address the unfolding humanitarian catastrophe in Afghanistan and to help revive the Afghan economy, as the two are inextricably linked. And the utilisation of Afghan funds should be the sovereign decision of Afghanistan.

The Debt

The Taliban, after taking control of Afghanistan had immediately claimed a right to the money. But what complicates the matter further is that a group of relatives of victims of the September 11 attacks, one of several groups who had demanded compensation for those killed in 9/11, have sought to seize this money to pay off their debt.

This debt is based on a default judgement titled ‘Havish vs Laden’ of 2011, awarding $6bn to a group of 9/11 victim families, as per a federal judge in New York. The parties named in the case —the Taliban, Hezbollah, Al Qaeda and Iran — never showed up (hence a default judgement). In its defence the Biden administration claims that this will open doors for expediting humanitarian aid to Afghan people, who are facing a lot of hardships.

The American media has lauded the decision, with Washington Post commenting in an article that though the issues, moral and legal, are extremely complex, with the ultimate disposition of the money up to a federal court in New York, the administration is surely right about one thing: Despite the desperate needs of the Afghan people, many of whom are at risk of starvation, it would be a mistake to put the money back at the disposal of Afghanistan’s central bank, with no strings attached — as the Taliban demands.

Pakistan’s Dawn in its editorial has commented that President Biden’s decision is simply appalling and lacks moral ground. It says further that for one, these assets belong to Afghanistan and not to the Taliban rulers. How can Washington justify inflicting collective punishment on the Afghans to penalise the Taliban? It raises a legal question as well. The money belongs to the Afghan central bank and therefore, should not be commandeered to pay the Taliban’s judgement debt. None of the 19 hijackers involved in the horrific terrorist attacks on that tragic day were Afghans. True, the plotters used Afghan soil and were under the Taliban’s protection, but to penalise the entire population implies that the attack had the sanction of the entire nation.

The decision compels one to compare this action to the colonial mind-set or colonial thievery of the past. The absurdity is that the richest country in human history is maltreating one of the poorest, for compensating the victims of and redressing a crime committed 20 years, in which the Afghan people had no role.

Further the Biden decision also gives birth to another quagmire, if it’s ready to transfer money to the Taliban administration, than doesn’t it means that it is tacitly recognising the Taliban government, leading other countries to engage with Taliban without its formal recognition?

(Asad Mirza is a political commentator based in New Delhi. He writes on issues related to Muslims, education, geopolitics and interfaith)