Rupee Rides Out The Covid Storm

The pandemic-induced slowdown is the first time the Indian currency has not depreciated in a crisis

- Samar Srivastava

IN 2008, DURING THE GLOBAL financial crisis, the rupee depreciated by 25 percent in six weeks. Capital flows had been hit and exports were down. The US dollar reigned, and gold rallied as a safe asset. The net result was a depreciation from ₹40 to the dollar to ₹50 at the end of 2008.

The intervening years have seen the rupee lose its value against a host of currencies (it moved from ₹50 to ₹75 to the US dollar between 2010 and 2020). High oil prices in the early part of the decade were to blame for this, as was a tightening in US interest rates—the US Federal Reserve signalled intentions to hike rates too. But, at the same time, the rupee held its own against emerging market competitors—its Bric counterparts, Brazil, South Africa and Russia, whose economies are built on commodity exports.

But as India entered the Covid-19 crisis, the previous depreciation playbook did not kick in. A host of factors resulted in the rupee holding its own against the dollar. From January, it has seen a mere 2.8 percent depreciation to ₹73.5 to the dollar. While this is equally on account of the dollar’s weakness, it also points to an emerging strength in the rupee, which should stand India in good stead in the years to come. The flip side is that a strong currency is bad for exports—in particular, textiles, gems and jewellery, where countries typically lack pricing power. (Information technology exports are less price-sensitive.)

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