Big opportunity for India to pitch rupee as Dollar Distancing takes place

As countries across the globe are wandering in search of non-traditional payment and settlement mechanisms, the wait is over now as Dollar Distancing is finally here.

Dollar Distancing an opportunity for India to pitch rupee:

According to sources, a notable development is taking place in the global currency market. The demand for Yuan has witnessed significant rise from short-circuiting the sanctions in place by corporates in select jurisdictions who have been utilizing multitude of non-dollar currencies to procure crude and other commodities viz. coal through striking deals in Renminbi/HKD/AED pairs at discounted rates, reported by SBI Ecowrap.

In relation to that Turkish President Recep Tayyip Erdogan recently announced that one of the key takeaways from his meeting with Russian President Vladimir Putin in Sochi was bilateral agreement to use Rouble as a monetary unit in trade. The talks were held upon gas exports to Turkey with both Central Banks agreeing to partially pay for them in Roubles, and that Russia and Turkey were moving forward to a gradual transition to paying in national currencies only.

As per some sources, Indian companies are also using Asian currencies to pay for Russian coal imports. India has been aggressively purchasing coal and oil from Russia since the beginning of Russia-Ukraine war, which allowed then to procure this items at lower cost.

It is to be noted that the local currency which was under pressure last month has seen appreciating in last few days after FII inflows turned positive since July-end pouring in $3.3 billion into the country.

Moreover, the recent trade deficit data shows an increase to record high in July 2022, annualizing the current deficit numbers gives annual deficit of 8.5 per cent of our GDP projections for FY23 which is much lower than the peak deficit of 10.7 per cent of GDP achieved in FY13.

The above data clearly states that the present situation is far better than that in 2012-13. Over everything, the market has already priced in higher CAD i.e. higher than 3 per cent of GDP for FY23.

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