The INR is the talk of the world of right now, even Paul Krugman is talking about it. Everyday the currency is hitting fresh lows against the USD and media is playing the field. I am surprised that the TV channels have not called in the usual suspects on prime time and played to gallery on the INR fall.
Yes, the INR hitting record lows of Rs 64.52 against the USD and falling by 45% over the USD in the last couple of years is a big issue for the country. Frankly even the most pessimistic of Indians would not have expected the INR to fall by such high percentage. At this point of time everything is in hindsight and one just cannot predict where the currency will end going forward.
However one factor is certain. This particular difficult period for the INR will play out sooner or later and markets, media, policy makers and investors will go back to doing what they do best, finding another theme to play on. Hence going on and on about the INR when the currency is falling every day will not help anyone positively.
The INR fall draws parallel to the Eurozone debt crisis that reached its peak in mid 2012. Greece was supposed to default, bond yields of Spain and Italy shot through the roof, the Euro was trading at multi year lows to the USD and equity markets across the world were at calendar year lows. The outcome was better, the Eurozone did not collapse and the Euro is trading 11% higher against the USD. Greece is almost forgotten by markets though the country itself is feeling the effects of austerity.
The INR fall is going to hurt. Importers and corporates with USD debt are the worst hit. FII’s are hit on their INR investments. Policy makers panic is hitting markets, investors and the economy. However there are a few gainers in this INR fall including exporters and savvy investors looking to bottom fish in both equity and bond markets.
I definitely do not have any contribution to make on the INR fall from here on. I am as much in the dark as anyone else on why the currency is falling continuously. Ultimately it is a demand supply game and more USD demand coupled with lower supply pulls the currency down. At some levels of the USD/INR pair, USD supply will increase leading to the INR regaining some of its losses. Until then, watching the USD/INR chart will only give one more pain and stress or give one more words to write or talk about the demise of India, the inefficacy of policy makers and other such things.
The INR fall is actually positive for the country. Politicians will not take the economy for granted and harp on pro citizen policies that actually hurt the citizens the most. Subsidies, freebies and tax exemptions lead to inflation, falling economic growth and a worthless currency.
Corporates will not rush to the mirage called cheap money that is available when liquidity is easy in the world. Importers and exporters will give more thought to currency management.
Investors will not close their eyes to the global macro and blindly put their money in whatever asset class that sells.
I am looking at the positive side of the INR fall and where it goes from hereon is not going to be my primary focus.