rupee: the rupee appreciates against the G10 currencies
The performance underscores the fact that the rupiah’s weakness against the US currency is not due to a fragility in India’s macro scenario, experts said.
“Not a sign of economic weakness”
In the current environment, this “is a clear indication of India’s cautious macroeconomic fundamentals, not generally seen in the past when the rupee fell to record lows,” said Madan Sabnavis, chief economist. at the house of
. “Such an appreciation will help curb imported inflation on non-dollar settlement goods,” he said.
The dollar appreciated against all major currencies amid expectations of further interest rate hikes by the US Federal Reserve and its safe-haven appeal at a time when recession fears are rising to worldwide.
“A short-term weakness in the value of the rupee does not necessarily mean a weak economy,” said Ashhish Vaidya, managing director of DBS Bank. “I expect emerging market currencies, including the rupee, to outperform developed market currencies given the inflation-growth dynamic.”
G10 currencies include the Swiss franc, Swedish krona, Danish krone, Norwegian krone and the dollars of Canada, Australia and New Zealand, alongside the yen, pound sterling and the euro.
The rupee gained the most against the yen at 10.76% this calendar year when the Japanese currency hit a 24-year low against the US dollar. It rose 5.86% against the pound, the highest since the Brexit referendum in 2016, and 4.74% against the euro.
On average, the rupee appreciated 2.79% against the G10 currencies plus the US dollar, shows Bloomberg data compiled by ETIG. This is the largest gain since the 5.76% gain recorded in 2015. Meanwhile, the rupiah has only gained in two years against the basket of currencies – by 2.11% in 2019 and 0.57% last year.
“The depreciation of the rupiah (against the US dollar) is not a problem specific to India, but mainly reflects the strength of the dollar against developed economies,” said B Prasanna, head of global trade at
. “The strength of the local unit against most of the G10 currencies only goes to show that despite the steep decline in the value of the rupee against the dollar, the other currencies are losing value at a much faster rate. .”
The Dollar Index, which measures unity against major currencies, has risen more than 12% this year.
The latest all-time low for the rupiah against the dollar was 79.96 to the dollar reported last Friday. However, the pair broke above 80 on Thursday night in the OTC and derivatives markets.
However, the real effective exchange rate index, based on a universe of 40 currencies, came in at 104.18 in June from 104.78 a month earlier, according to the latest data from the Reserve Bank of India. This means that the rupee is still overvalued by almost 5%, despite the erosion of its value against the US dollar.
ICICI Bank’s Prasanna said India had seen large inflows of foreign investment during the pandemic years, but the rupiah never appreciated during that time as the RBI struggled to absorb the dollars and had built up a war chest.
Foreign portfolio investors invested a net $40.5 billion in calendar years 2019-2021, data from NSDL, a depository, shows. However, they have sold a net amount of nearly $31 billion this year, which is also weighing on the rupee.