The Indian rupee has been one of the worst-performing currencies in Asia during 2020, failing to capitalise on the weak US dollar and unprecedented foreign fund inflow.
During the calendar year, the rupee has tanked by 3.28% against the US Dollar, as the Reserve Bank of India kept reigns tight on the domestic currency.
The only currency which has marginally underperformed compared to the Indian rupee is the Pakistani rupee (dipping 3.53%), as the country has been saddled with external debt.
The Indian rupee, unlike its Asian counterparts, failed to capitalise on a weak dollar and heavy foreign fund inflow owing to high intervention of the Reserve Bank of India in the foreign exchange market.
Other than India and Pakistan, the Thai Baht (which is heavily dependent on tourism) is the only currency that has depreciated in 2020, dipping 1.42%.
“One of the reasons why the Rupee has remained stable or not appreciated compared to its peers is RBI’s intervention in the markets on both sides i.e., on the sell-side and on the buy-side of things,” Sriram Iyer, Senior Research Analyst at Reliance Securities said.
During the year, RBI kept buying the weak US dollar, thereby increasing the demand for greenback vis-a-vis Indian rupee. According to data from RBI, forex reserves with the bank is at a record high at $579.35 billion, with forex assets at a high level of $537.39 billion.
The central bank also admitted in its December monetary policy meeting that currency interventions are not just about managing volatility anymore and are enabling the orderly evolution of the exchange rate in consonance with underlying domestic fundamentals.
“We continue to see Rupee underperform despite huge amounts of foreign fund inflows into domestic markets even as global central banks continue to maintain their accommodative monetary stance, along with major economies maintaining loose fiscal stance,” said Iyer.
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