The Indian Rupee outperformance is despite large outflows from the local debt and equitymarkets.
The performance of the rupee is also in stark contrast to the 2013 period when emerging market currencies plummeted due to fears of the US FederalReserve tapering its balancesheet, wrote JPMorgan’s Chief India Economist Sajjid Chinoy in a note dated April 3.
Foreigninvestors pulled out $14 billion from the country last month compared to $7.2 billion back in 2013. Even as a percentage of GDP, this is the single largest monthly outflow on record, Chinoy said.
Heavy RBI Intervention
Another factor in supporting the rupee have been the RBI’s direct and indirect interventions in the foreign exchange market.
The centralbank’s direct intervention has come via the offer of longterm forex swaps, providing dollars to the markets. Indirect intervention has come via selling in the spot markets.
Why might the RBI be intervening so heavily to prevent depreciation?
Chinoy says that one concern could be the spurt in externalcommercial borrowings by Indian corporates over the last few years. It is possible that a fraction of these recent commercial borrowings remain unhedged, prompting the RBI to step in and stem possiblelosses for those who have borrowed overseas.
The central bank may have also been trying to prevent a downward spiral.
