Why Rupee fall is not all bad news?

In last one year India Rupee depreciated 10% against US Dollar, from 60.38 on Sept 9th 2014 to 66.68 on Sept 8th 2015. This might sound like a big fall, particularly If you consider the long-term average of around 5%(Ref Table 1), Rupee depreciated more than double the average in last one year.

TABLE OF RUPEEA mere statement by US Fed about ending its quantitative easing programme, sent the rupee to all time low of 68.8 in Aug 2013. This event also had a similar impact across the world currencies.

YEARUS DOLLAR VALUE IN RUPEESYEARSCOMPOUNDED GROWTH
198512.34305.75
199017.5255.46
199532.43203.62
200045152.59
200544.01104.15
201045.6557.67
201566.0600
TABLE:1

In last 2 years, Rupee is one of the strongest performer compared to most of the other currencies across the world(Ref Table 2), After the two major events in last one year, Greece Crisis and Chinese Yuan devaluation, there was a major impact on currencies across the globe. This is how major currencies across the world fared in last 2 years.

CurrencyAug 2013 Peak valueSept 9th 2015Compounded depreciation
Russian Ruble33.3767.62-102.64%
Argentine Peso5.679.33-64.55%
Brazilian Real2.443.81-56.15%
Turkish Lira2.042.99-46.57%
South African Rand10.4113.59-30.55%
Indonesian Rupiah11329.414281.34-26.06%
Australian Dollar1.121.41-25.89%
Mexican Peso13.3716.79-25.58%
Euro0.750.89-18.67%
Singapore Dollar1.281.41-10.16%
Chinese Yuan Renminbi6.126.37-4.08%
British Pound0.640.640.00%
Hong Kong Dollar7.757.750.00%
Indian Rupee68.8666.383.60%
TABLE:2

Why is Rupee relatively Resilient & better placed?

While less dependence on commodity exports compared to other countries and comfortable Forex reserves are critical factors, there are other key factors that are supporting Rupee. Falling inflation, Best real rate of interest are some of them.

India is still showing robust pace of growth, relative to China which went through a strong pace of growth in last 20 years, India is still in the early stages of growth. Whether it is Raghuram Rajan’s RBI policies to control the inflation or the new government reforms headed by Modi to make India an investment destination, all the signs are pointing to good growth phase for India for the next 5 to 10 years. With relatively young population and consumer growth story unraveling at enormous pace, Rupee is expected to be relatively stable in spite of turbulent times ahead.

 

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