Even as the Indian rupee settled below the 70-mark yesterday on bouts of dollar selling by exporters and corporates, Sajjid Chinoy of JP Morgan says that the domestic currency needs to depreciate more in order for the exports to become competitive. The rupee today staged a good recovery to end higher by 20 paise at 69.91 yesterday. The domestic currency recouped early losses and withstood the headwinds of surging crude prices and trade deficit worries.
“Classical economic theory would suggest this requires expenditure switching. We need to have a real depreciation of the currency to boost export competitiveness, to make imports more expensive, and therefore boost import competing sectors,” Sajjid Chinoy, chief economist at JPMorgan told in an interview to CNBC TV18.
Notably, India’s current account deficit has soared to a near five-year high of USD 18 billion, raising concerns on the current account front. Sonal Varma, chief economist at Nomura noted that this could lead to depreciation of the domestic currency. “There is a problem on the balance of payment (BoP) funding and unless we take measures to squeeze down our current account deficit, there will be pressure on the currency to depreciate, which has other implications on the macroeconomic front,” Varma told CNBC TV18.
Taking stock of the rising CAD (Current Account Deficit), Sajjid Chinoy said that this has been a persistent issue. “It’s important to understand that the current account problem is not one of last month or last quarter. We have been saying this for a while and YV Reddy alluded to this,” he said. Chinoy explained that to understand current account deficit, one has to move away from oil and gold. “If you do that, what you find is a very worrying trend that the current account surplus that India runs, ex-oil and gold, has actually deteriorated by almost three percent of GDP over the last three years,” he told the channel.
Source: financialexpress.com