January 20, 2021

Rupee becomes worst-performing Asian currency; bonds rally in 2020

1 min read
Rupee becomes worst-performing Asian currency; bonds rally in 2020

By Administrator_ India

Capital Sands

Bonds closed stronger on the last day of 2020 and the rupee weaker as the Reserve Bank of India  followed opposite strategies for the two throughout the year.

The rupee ended at 73.1 a dollar on Thursday, against 71.4 at the end of 2019. It has depreciated 2.3 per cent in this calendar year, becoming the worst-performing currency in Asia. The rupee’s performance is also in sync with the aggressive foreign exchange reserve accumulation by the RBI.

According to the latest numbers, as of December 18, India had $581 billion-plus of foreign exchange reserves. This is an increase of $120 billion.

On a net basis, the portfolio flow in both debt and equity has been about $9 billion. This would indicate that not all the reserves accumulation in the year has been on the back of current accounts only. There is some amount of permanency in India’s reserves now, say analysts, and it also shows that the RBI’s intervention in the rupee was made with a purpose to keep the local currency weak.

This is also to address the overvaluation of the rupee in the previous few years, say analysts. Therefore, most don’t expect the rupee to strengthen in a huff in the new year. Rather, it would be in the country’s advantage to keep the currency a little weak.

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