India‘s Finance Ministry yesterday hiked import tariffs on 19 items deemed ‘non-essential’, including home appliances, shoes and jet fuel.
The rupee has plunged by around 13 percent against the US dollar so far this year, making it Asia’s worst performing currency in 2018.
New Delhi hopes the new tariffs will halt the currency’s freefall.
But Indian economists have been split on the effectiveness of the plan.
Soumya Kanti Ghosh, chief economist at the State Bank of India (SBI), said: “This is a sentiment booster for the rupee.
“The central bank needs to intervene more actively in the forex market to support the rupee.
“These tariff measures won’t help in the long term.”
But a forex trader at a foreign bank said: “This is positive news for the rupee given that it will help reduce India’s current account deficit.”
The rupee’s rapid plunge in value has been coupled with a surge in oil prices.
The development caused major panic because India’s economy relies on imports for around 80 percent of its energy needs.
The Reserve Bank of India (RBI) is expected to raise interest rates next month in a further bid to prop up the retreating currency.
The predicted rate hike would be the RBI’s third this year, after it lifted borrowing costs in June and August.
Radhika Rao, an economist at Singapore’s DBS Bank, said: “It is necessary for the RBI to provide a policy response. The question was only of timing.
“Some would say the rate hike could have come sooner – it probably would have been a bit more beneficial. But better now than never.”
Prakash Sakpal, Asia economist at ING, added: “The RBI will have to do more.
“However, that looks unlikely on the grounds of on-target inflation and stress in the financial sector.”