The Indian rupee is “tracking closer to its fair value” and the scope for further rapid depreciation appears unlikely, though the time is appropriate for policy interventions to anchor negative sentiments, experts said on Saturday.
“Currently, the rupee is tracking closer to its fair value as per our fair value computation. From here on, the scope for rapid depreciation appears unlikely,” Yes Bank’s Group President and Chief Economist Shubhada Rao said.
The Indian rupee on Friday closed at 71.85, recovering 34 paise from its previous close of 72.19 per greenback.
She, however, said policy interventions are required to anchor the “negative sentiments”.
“The government and Reserve Bank can make policy interventions now. If it does not, the expectations get un-anchored. It is very important to anchor the expectations and time is appropriate to do it,” she said on the sidelines of an event organised by the Merchants’ Chamber of Commerce and Industry.
According to her, there could be short term measures to contain the trade imbalance. In order to stop further depreciation of the rupee and widening of current account deficit (CAD), the government on Friday took some measures and a broad policy decision to curb non-essential imports and increase exports.
International Monetary fund (IMF) Senior Resident Representative for India, Nepal, Bhutan, Andreas W. Bauer, said as per their assessment, the real exchange rate level is “broadly in line with the fundamentals”.
Citing a study prepared by the lender, Rao said the recent phase of relative depreciation has reduced the misalignment of the Indian rupee from fair value based on real effective exchange rate (REER) rebased to FY12.
Estimated overvaluation is likely to have reduced to 3.7 per cent in August from 9.9 per cent in the corresponding month last year, she said.