INSUBCONTINENT EXCLUSIVE:
India last witnessed currency crises in 2013, 2011, 2008 and 1997.
Former Reserve Bank governor Raghuram Rajan hopes the rupee does not go
in for a free fall, and RBI would do what it takes to tame inflation.
Economists feel the apex bank has enough armour in its war chest to
restrict further fall in the local unit.
After a steady drop, the rupee saw a rebound on Thursday
On Friday, it opened 49 paise higher to trade at 71.70 to the dollar
For the year, it is down 11 per cent against the greenback
It lost 1 per cent in the first 10 days of September.
By nature, the rupee is not fragile
If anything, it is vulnerable to external shocks
warning gauge, India stood at 25, signalling relative stability compared with its peers
The Damocles index is based on eight key indicators which help strike a balance between false signals (noise) and real crisis signals and it
assesses the risk of an exchange rate crisis up to 12 months in advance.
These indicators include import cover ratio, the ratio of forex
reserves to short-term external debt, current account balance, short-term external debt real, short term interest rate and M2/FX reserves.
A
Damocles reading above 100 is interpreted as a warning signal that a country is vulnerable to an exchange rate crisis
A reading above 150 signals that a crisis can erupt any time, which is currently the case with Sri Lanka
was due to weak domestic macro fundamentals and worsening external funding conditions
Since then, CPI inflation has moderated (to 4.5 per cent in 2018 from 9.7 per cent in 2012), as has current account deficit (2.5 per cent of
Real rates are positive (2 percentage points versus minus 2 percentage points) and the central bank has a sufficient FX reserve buffer (9.3
Here's a list of currency crises seen in various countries since 2001:
(Image source: Nomura India)Analysts noted that since the 2008
global financial crisis, emerging markets received 50 per cent of capital flow compared with 20 per cent in the pre-crisis period
India has been a key beneficiary of the global liquidity boom, receiving around $170 billion flows from foreign portfolio investors (FPI)
Our forex market financial conditions index has deteriorated, but it is yet to hit crisis levels of August 2013 and 2008
Several EMs have embarked on interest rate defence of their respective currencies
RBI, too, has hiked repo rate in last two policy reviews.
