After a tumultuous year and swinging pendulums in the stock markets, the rupee is slated to end the year as as Asia’s worst-performing currency, as foreign funds made a hasty retreat out of the equity markets.
The INR declined 2.2% this quarter as global funds pulled $4 billion of capital out of the country’s stock market.
Goldman Sachs Group Inc. and Nomura Holdings Inc. recently lowered their outlook for equities, citing lofty valuations, at a time when concerns about a third wave rattled investors.
The RBI needs to have a balancing act amid a nascent economic recovery from the pandemic, as a weaker currency may boost exports but also poses risk of imported inflation, and may make it difficult to maintain low interest rates.
Foreign exodus from stocks have led to the benchmark S&P BSE Sensex Index falling by about 10% below an all-time high touched in October. India’s trade deficit also widened to an all-time high of about $23 billion in November, and intervention of the RBI is highly unlikely, after it increased liquidity in the markets. Even so, the rupee gained 0.2% on Monday to 75.9163, amid speculation that the central bank intervened to curb the slide.
A likely reversal in foreign inflows particularly the ‘biggest IPO’, LIC, may provide some respite.
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