Falling Rupee, a double-edged sword for India, warn analysts

MUMBAI: India & # 39; s rupee reached new record lows Thursday, amid warnings that the benefits to exporters from a weaker currency would be offset by the higher price paid for oil by Asia's third largest economy.

The Rupee only dropped two days after crossing 70 for the first time to $ 70.38 when India fell into the turmoil of the Turkish financial crisis.

The rupee steadily declined in 2018 after the beginning of the year at 63.67.

The weaker rupee is helping India sell goods and its gigantic service sector in overseas markets, but the country is a huge importer of oil, which takes more than two thirds of its needs from abroad.

Any increase in exports will be offset by pressure on inflation and the current account deficit, said the Association of Investment Funds in India.

"It's a double-edged sword for the Indian economy," chief executive N.S. Venkatesh told AFP.

Any optimism that would help the falling rupee exporters should be tempered with caution, according to the Federation of Indian Export Organizations (FIEO).

South Africa, Argentina, Mexico, Brazil and Russia have all seen their currency slip last week because, like Turkey, they remain heavily dependent on dollar-dominated foreign capital.

India's IT, service and leather exporters can benefit from a weaker rupee, but so do competitors from their declining currencies.

"We will lose our competitive position in relation to these economies and the profitability of the export will also decrease," FIEO Ajay Sahai told AFP.

Analysts say high oil prices depress the Indian currency, making it less attractive to investors.

Brent Crude was at $ 70.90 a barrel on Thursday, well above the prices of about $ 50 at the same time last year.

The decline of the rupee leads to a widening of the current account deficit of India, while the value of imports exceeds the value of exports, analysts say.

The central bank of India has raised interest rates twice this year, partly to help raise the value of the rupee.

But the currency may expect more fluctuations until the price of oil and economic conditions in emerging markets stabilize, Mumbai-based independent economist Ashutosh Datar told AFP.

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