‘Rupee’s underperformance in Dec’22 seems perplexing’
Economists have expressed surprise at the rupee’s underperformance this month, even as the global environment remains positive for the domestic currency.
Reversing the gains made last month, the rupee depreciated by 1.2% in December and the volatility in the exchange rate also increased, experts noted.
“The rupee’s underperformance in December seems perplexing, particularly since the global environment is much more positive for the rupee. US Dollar Index (DXY) has eased, oil prices have been benign, averaging a little over US$ 80/bbl, and FPI flows have remained positive,” Aditi Gupta, Economist, Bank of Baroda said in a note.
Gupta further stated that oil prices have seesawed, but have remained benign compared with the highs seen during the Russia-Ukraine war.
Concerns have however remained on the domestic side. Trade and current account deficits have been increasing, raising concerns over their financing, he added.
“The increasing pressure on the current account needs to be offset by strong capital inflows. However, concerns remain on that front as well. FPI flows, although positive, may not be enough to compensate. Even FDI inflows have remained muted. With higher global interest rates,
even ECB flows will be difficult to get,” the note further said.
Over this backdrop, the recent increase in forex reserves is a welcome relief and they stand at $ 561 bn which is down since April by $ 46 bn and $ 74.7 bn over a year, it added.
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Ganesh
http://ganesh@finplay.inFinance enthusiast, Mutual fund expert.