2021 proved to be a stormy year for India and its currency rupee. And now, at the end of the year, it has become the worst-performing currency of Asia as foreign funds escaped the country’s stocks.
The global funds pulled out the capital worth almost $4.2 billion of the nation’s stock market. This happened because the shares or equities of firms like Goldman Sachs Group Inc. and Nomura Holdings Inc. fell resulting in lofty valuations. Moreover, the threats of the Omicron variant of covid are affecting the global markets.
It resulted in a record-high trade deficit in India and even the central bank using the Federal Reserve to manage fluctuations impinged the rupee’s carry appeal. The currency has declined 2.2% in the last quarter of the year.
The head of the global markets, sales, trading and research at ICICI Bank Ltd, Mumbai, B. Prasanna stated, “The monetary policy divergence and widening current account gap have set depreciation in the rupee in the near term.”
Depreciation of the currency acts as a double-edged sword for the Central Bank. Depreciation results in the rise of exports and maybe a nascent economic recovery after the pandemic but at the same time harms the balance of imports as imported goods become expensive which may make it hard for the RBI to keep interest rates at such record low for longer.
The Indian currency rupee is expected to drop about 4% this year as it will be a fourth straight year of losses for India. QuantArt Market Solutions stated that rupee is likely to decline to 78 per dollar by end-March, breaking it’s last record low of 76.9088 reached in April 2020, while a Bloomberg survey of traders and analysts expected the rupee at 76.50 in 2022.
