Rupee needs to depreciate: Mythili Bhusnurmath

In a chat with ET Now, Mythili Bhusnurmath, Consulting Editor, ET NOW, shares her views on the effect of the ECB stimulus plan on the rupee. Excerpts:

ET Now: What are your observations of some strength or stability which is coming back to the rupee?

Mythili Bhusnurmath: The rupee needs to depreciate and a slow and gradual depreciation would be in our interest. In a slowing economy, except for the US, which is recovering, the rest of the world is not recovering. So demand is clearly subdued and we need the rupee to be slightly softer rather than stronger. But on the contrary, thanks to things like ECB and quantitative easing which has now happened, we are going to see the rupee appreciate and that is going to hit our exports. We do need our exports to grow and if our exports do not grow, then that is not going to be a good news for India. So I would not look at the strength of the rupee as a sign of strength. In fact, I would look at it as a failure of the Reserve Bank of India to control the excessive strengthening of the rupee because we do need the rupee to gradually reflect its really underlying fundamentals.

The strengthening of the rupee is really not a good sign for the economy. It might make us feel good and it brings down the import bill for sure but in the long term, it is not good. The RBI should do something even though they say that they do not have a value of the rupee and they intervene only to curtail volatility. Any undue strengthening of the rupee which is not in consonance with the underlying fundamentals is not a good sign and we have even seen countries like Switzerland intervene and really remove the peg because you really know that beyond a certain point, you cannot intervene but for countries like India, we do need to have much more aggressive intervention. This is the time for us to pick up, add to our reserves, get the rupee value closer to its underlying fundamental value and that is where we are really kind of missing out in the action at the moment.