Indian Currency in a New Territory – Part Two

In reference to our research dated June 2012, amid high global volatility, Indian Rupee (INR) has been under relentless selling pressure we will highlight our views on the reason leading to fall in the currency and its implications in this note. The fall in the INR in the past few weeks has been sharp. However, it reflects an underlying global trend with currencies of many Emerging Markets depreciating simultaneously on fears of withdrawal of Quantitative Easing (QE) by US Federal Reserve due to improving US economy. Further, worth noting is that given stagnant Foreign exchange (FX) reserves in India, strong growth in external trade and rising dollar denominated debt, FX reserves is no longer very high? While a policy response had been missing until early this week, policymakers are slowly turning towards using a mix of verbal and market intervention.

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