When will Indian rupee stabilize? Chief Economic Advisor weighs in
What's the story
India's Chief Economic Advisor (CEA), Dr. V Anantha Nageswaran, has predicted that the depreciation of the Indian rupee could slow down if inflation is tamed. He made the prediction while addressing an IVCA Conclave earlier today. The CEA's prediction hinges on the assumption that if India manages to keep inflation in the 3-4% range, while developed nations fail to bring it down below 3%, rupee depreciation could slow down.
Currency dynamics
Inflation differential and dollar strength impact rupee value
Nageswaran clarified that long-term currency depreciation is a function of the inflation differential (difference in inflation rates between two countries). He said the current rupee weakness is due to an extended period of dollar strength, not any structural issues. His statement comes when the rupee marked its best rally in over two years. The currency rose by 61 paise to ₹86.84 against USD, after a high volatility period amid rising trade war fears and global economic uncertainty.
Market resilience
India's robust returns and investment opportunities
Despite the rupee's depreciation, Nageswaran stressed that India has always delivered strong returns for direct, portfolio, and private equity (PE) investors. He also pointed to the depth of capital markets in India as a source of plentiful investment opportunities. "Despite volatility, India remains a rewarding market for long-term investors," he said. The CEA urged investors to account for rupee depreciation in their investment decisions but assured them it hasn't historically impeded returns.