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The relative performance of currencies is often likened to a beauty pageant in which the “least ugly” candidate wins.
But so ugly has been the Indian rupee’s performance so far this calendar year that it is unlikely to win any prizes.
The rupee has been extremely weak, not only against the dollar, but also against other major currencies. It is down 0.85 per cent against the dollar, during a period when other emerging market currencies such as the Brazilian real, the Russian rouble and the Malaysian ringgit have gained 7 to 11 per cent against the greenback.
The dominant factor influencing currency markets in 2016 has been the US dollar; the dollar index has declined 3 per cent since the beginning of the year.
The decision of the US Federal Reserve to go slow with rate hikes eased risk aversion in the market, which was lending strength to the dollar all through 2015. At its recent meeting last week, the Fed indicated that only two more rate hikes are possible this year, against the four expected in December 2015.
Rupee on the back footBut, surprisingly, the rupee has not benefited from the dollar’s weakness, although other currencies have. This is largely due to foreign money outflow in the first two months of the year. Foreign Portfolio Investors (FPIs) sold $2.45 billion in equities in January and February. The debt segment also witnessed a sell-off by FPIs; they sold $844.5 million in the two months. The selling-spree drove the rupee to 68.78 in February, close to its all-time low of 68.85 in August 2013.
The rupee was also dragged down by the continuous fall in India’s exports since December 2014. In February, exports fell 5.6 per cent year-on-year to $20.74 billion.In the past 15 months, exports have fallen 21.7 per cent.
Down against allThe rupee has depreciated more than 10 per cent against the real, over 7 per cent against the rouble and the ringgit; against other major currencies, ithas lost more than 3 per cent against the euro and 7 per cent against the Japanese Yen. Only against the British pound has the rupee has strengthened 3 per cent.
That means it isn’t the “ugliest” candidate in this beauty pageant; a small but meaningless consolation prize.
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