Rupee becomes worst performing Asian currency

The Indian rupee has become the worst-performing currency in Asia during August, as it depreciated by 3.9% in the past 21 days.

The rupee closed at 71.56 against the US dollar on Wednesday -- down 281 paise from 68.75 on July 31, 2019. In comparison with the rupee, Chinese Yuan depreciated by 2.43%, Philippine peso by 2.94%, Korean Wong by 2.34% and Singapore Dollar 1.2%. The worst performing currency against the dollar globally has been South African Rand, that has seen a depreciation of 8.48%. 

The Indian currency has been depreciating against the US dollar as foreign investors are pulling out of the Indian markets. Foreign Portfolio Investors have turned negative and the budgetary announcement on tax surcharge has been a factor that has restricted their activity. Interestingly, in August so far, the investments in debt are still positive while being negative in the equity at over $1 billion.

The only currency that has made gains against the US dollar has been Japanese Yen, that has gained 1.94% against the US dollar in the past three weeks.

The rupee appears to be moving down quite sharply since July 31, when the Federal Reserve announced a rate cut even though India's forex reserves have been increased to $430 billion for the week ended August 9, against $411.9 billion at the start of the financial year.

The rating agency Care Ratings believes that depreciation of 3-4% in the year can be expected to be normal given the way FPIs have behaved of late as well as limited buoyancy in foreign trade.

"The rate cut was an attempt to ensure that the strengthening US economy did not falter even as inflation remained low. Lowering of interest rates by the Fed revealed a weaker economy which should have made the dollar weaker; but that was not the case. In fact looking at the tendency for the yield curve to get inverted in the USA, the market is looking at a possible recession which is foretold by such a development," Care Ratings noted.

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