Jose John March 19, 2016 No Comments
BENEFITS OF STRONG CURRENCY OUTWEIGH LOSS TO EXPORTERS In the popular consciousness, a strong currency is often associated with economic strength. But appreciation in the value of a currency is also seen as a double-edged sword that hurts exporters and helps importers. Over the last few weeks, the exchange rate of the rupee vis-a-vis the greenback changed from just under Rs 45 to over Rs 40, an appreciation of roughly 8.5 per cent over less than 40 working days. The benefits of a stronger rupee are obvious: imports of petroleum, the demand for which is price inelastic and con­stitutes a third of total imports, will become cheaper and have a significant anti-inflationary impact. The same can be said of capital goods, which account for 12 per cent of total im­ports. Import growth in both these segments is above 40 per cent. In fact, as a result of a stronger rupee, oil companies have, to an extent, been insulated from the recent rise in world prices of crude oil, from $53 a barrel in January to $65 a barrel in May. There is nothing new about rupee appreciation. It would appear gradual if one looks at the 12-month period up to March – the exchange rate of the Indian currency...
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