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Rupee is the worst performer in emerging Asia as RBI tries to lift economy

The RBI bought has about $18 billion of foreign exchange since the end of September.

Kartik Goyal | Bloomberg 

RBI, reserve bank of india
The RBI is mopping up dollars gushing into local stocks and bonds.

The Reserve Bank of India’s efforts to support the flagging economy are turning out to be a bane for the

The is the worst performer in emerging Asia this quarter, and analysts say that’s because the central bank is mopping up dollars gushing into local stocks and bonds.

The bought has about $18 billion of foreign exchange since the end of September, according to estimates by Bloomberg Economics. While the purchases have propelled reserves to a record, the has fallen about 0.7% since Sept. 30.

Weakness in the despite robust inflows is seen as a sign the central bank wants to curb a sharp appreciation in the that can hurt exports. With slew of data pointing to weak economic activity, boosting shipments is high on agenda for the government.

“Part of the rupee’s under performance is deliberate,” said Mitul Kotecha, a senior EM strategist at TD Securities in Singapore. “Higher reserves prove that the central bank is probably making determined efforts to keep the rupee’s competitiveness.”

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The has said it does not target any particular level of exchange rate and steps in only to curb undue swings in the Though, as the rupee was heading for its worst quarterly decline in a year in the three months ended September, Governor Shaktikanta Das said September 19 that the currency is fairly valued, indicating tolerance for a weaker rupee.

India’s exports have shrunk for three months in a row, contributing to further deepening of a growth slowdown. A report on Nov. 29 is likely to show gross domestic product grew 4.6%, which would be the weakest pace of expansion since the first three months of 2013.

Expectations that the government will continue to take steps to revive growth has prompted foreign funds to pump $4.6 billion into local shares and more than $600 million into debt this quarter. The purchases have pushed up the nation’s main stock index to a record.

The central bank will continue to soak up the inflows to address the rupee’s overvaluation, according to Kotak Securities Ltd.

“When you have decent inflows, there is no reason for the rupee to depreciate and the RBI’s sharp dollar purchases are the predominant reason behind the weakness,” said Anindya Banerjee, a currency analyst at Kotak in Mumbai.

First Published: Thu, November 28 2019. 08:33 IST
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