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Rupee is by the end of the year Asia’s worst currency. This is why


Rupee is by the end of the year Asia's worst currency.  This is why

Rupee devaluation is a double-edged sword for the Reserve Bank of India.

New Delhi: The Indian rupee will end a volatile year as Asia’s worst performing currency with foreign funds fleeing the nation’s reserves. The coin has fallen 2.2% this quarter as global funds withdrew $4 billion of capital from the country’s stock market, the most of any regional market for which data is available.

Foreign investors sold Indian shares as Goldman Sachs Group Inc. and Nomura Holdings Inc. recently downgraded its outlook for the stock, citing high valuations, at a time when concerns about the omicron virus variant are roiling global markets. The record-high trade deficit and divergence in central bank policy with the Federal Reserve also affect the rupee’s appeal.

B. Prasanna, global head of markets, sales, sales and research at ICICI Bank Ltd in Mumbai, said: “Monetary policy divergence and widening current account spreads have caused The rupee depreciates in the near future.

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Rupee devaluation is a double-edged sword for the Reserve Bank of India. While a weaker currency could support exports amid a new economic recovery from the pandemic, it also poses import inflation risks and could make it difficult for the central bank to maintain interest rates at home. record lows for longer.

QuantArt Market Solutions expects the rupee to fall to $78/USD by the end of March, surpassing the previous record low of 76.9088 reached in April 2020, while a Bloomberg survey About traders and analysts forecast the rupee at 76.50. The rupee is expected to fall about 4% this year for the fourth straight year of losses.

Stocks on The Edge

The outflow of foreign investors sent the S&P BSE Sensex Index down about 10 percent below its all-time high in October. Even so, its one-year price-to-earnings ratio. Sensex is close to 21, compared with 12 for the MSCI Emerging Markets Index, meaning there is still room for the stock to fall further. Bonds saw $587 million outflows this quarter.

The falling rupee is growing as India’s trade deficit widens to an all-time high of around $23 billion in November amid higher imports. According to Goldman Sachs, the ample liquidity in the banking system, generated in part by the RBI’s dollar purchases, could make it difficult for the central bank to intervene to the same extent in 2022 to limit loss of rupees.

However, not all are pessimistic. According to UBS AG, a reversal is likely for foreign capital inflows next quarter due to stock sales at companies including Life Insurance Corp.

The rupee rose 0.2% on Monday to 75.9163 per dollar amid speculation that the central bank intervened to limit the rupee’s losses.

Aside from the temporary dollar/rupee spike expected over the next 4 to 6 weeks, “we see Q1 current account-supporting one-off flows and seasonality come into play.” ,” said Rohit Arora, Asia Emerging Markets Strategist at UBS. “As long as oil remains tame, the rupee will end the fiscal year below current levels, probably in the 74-75 range.”

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