Page 40 - The Indian EYE 070122

BUSINESS EYE JULY 01, 2022 | The Indian Eye 40

FALLING RUPEE, RISING CRUDE:

How Govt is trying to beat stagflation trap in India

Gold prices are expected to trade in a narrow range until some clarity arises in the key interest
rates and other monetary policy measures in the US

OUR BUREAU
New Delhi/Mumbai
ndian currency rupee on Wednes-
day touched yet another fresh low
Iof 78.29 per US dollar, primarily
due to growing concerns about rising
inflation. Inflationary concerns have
led to aggressive monetary policy
tightening by various central banks,
bringing in the likelihood of a reces-
sion. On Tuesday, the rupee closed
the trade at 78.14 against the US dol-
lar, data showed.
Back home in India, foreign
portfolio investors pulling out money
from the country for past consecutive
eighth-to-nine months are also likely
to have put pressure on the domestic
currency, said analysts.
So far in June, foreign investors
have pulled out around Rs 38,500 crore.
“Rising crude oil prices, per-
sistent high inflation, massive selling
by FPI’s and a widening current ac-
count deficit pushed the rupee down
to its lowest level in history. Despite
having adequate forex reserves, we
believe rupee will remain under pres- The rising prices of oil is putting a strain on the economy (ANI)
sure (against the dollar) in the near
term,” said Piyush Chajed, Research rising input costs, higher cost of living 2021-22 has carried into the first quar- pected to trade in a narrow range
Analyst at Choice Broking. and tightening stabilization policies ter of 2022-23 as reflected through until some clarity arises in the key in-
International crude oil prices pursued by central banks the world several high-frequency economic in- terest rates and other monetary poli-
have been above the psychological- over to rein in inflation, the Finance dicators for India. cy measures in the US, said financial
ly crucial $100 per barrel mark, and Ministry said in its Monthly Econom- The composite PMI for India has services firm Emkay Wealth Manage-
inflation is at a multi-decadal high in ic Review May 2022. The report not- risen to its highest level in the last 18 ment in a report.
advanced countries. Inflation in India, ed that tightening fiscal and monetary months. In contrast, the growth of The yellow metal gold has been
too, is above the permissible toler- policies can address inflation only world output appears to be stalling trading in the range of $1,810-$1,875
ance band at the moment. from the demand side, insofar as they with the composite PMI of the US, per ounce for the past one month,
Typically, the Reserve Bank of In- are able to smother pent up demand the UK and the Eurozone declining primarily due to the persistent infla-
dia intervenes in the market through and roll-back stimuli announced as appreciably from April to May. tionary pressures and the rising policy
liquidity management, including the part of the COVID-19 relief package. This is consistent with agencies rates. The stubborn and sticky infla-
selling of dollars from the foreign ex- “Simultaneously, from the sup- worldwide projecting a slowing of tion has forced central banks across the
change reserves, with a view to pre- ply side, trade disruptions, export global economic growth from their globe to hike rates aggressively and un-
venting a steep depreciation in the bans and the resulting surge in glob- earlier estimates. India’s growth fore- wind the easy monetary policy to re-
value of the rupee. al commodity prices will continue to cast for 2022-23 has also been revised verse the excess liquidity in the system.
There is a “distinct possibility” of stoke inflation as long as the Rus- downwards although it continues to Clearly, gold has outperformed
widespread stagflation in the world, sia-Ukraine conflict persists and glob- be the highest among major coun- the other asset classes due to the un-
but in India, the risk of stagflation is al supply chains remain un-repaired,” tries, the Finance Ministry said. certainty created by the geopolitical
low as the country has adopted pru- it said. Referring to the recent hike in tensions between Russia-Ukraine
dent stabilization policies, said a re- “The World is looking at a distinct interest rates by the Reserve Bank and a subsequent spike in interna-
port released by the Finance Ministry possibility of widespread stagflation. of India (RBI), the Finance Ministry tional crude oil prices.
on Monday. For now, the risk is lower for India than said, “RBI’s monetary policy is now Gold is trading in a narrow range
As forecasts of real GDP growth other countries,” the report added. fully dedicated to reining in inflation as the appreciation in the US dollar,
across economies drop at regular in- The report noted that the growth pressures in the economy.” in which the buyers and dealers deal,
tervals, it will be the consequence of momentum of the fourth quarter of Meanwhile, gold prices are ex- is pulling down the yellow metal.

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