core sector communique

Falling dollar: If exports don't take the hit, imports will

The world press is full of reports about the declining dollar, and the effect this has had on the (dollar) price of crude, gold and so on. But the Indian press has had little to say about the effect of the falling dollar on the rupee.

Engrossed in working out how many paise the rupee moved — up, down or sideways, today, yesterday, last week — it has had little time to spare for the larger picture.

And, yet, there is an interesting story to tell.

Though the dollar began falling 15 weeks ago (and is widely expected to drop some more before it levels out), it has so far not fallen vis-à-vis the rupee.

Because the rupee was allowed to fall with it (thereby increasing the value of the euro, for example).

Between January 11 and April 29, the dollar lost 13 per cent against the euro.

But against the rupee it barely moved.

Whether this is good news for dollar-invoiced exports (and for the valuation of our foreign currency assets) depends on whether ‘averted loss' enters the calculus, or only accrued gain.

But the fall of the rupee apace with the dollar is bad news for inflation.

Commodities will cost more. So will crude...