![]() The outflows put pressure on the Indian currency, making it weaker.Ī case in point is the events in August 2013, when the rupee had come under severe pressure even as Indian 10-year bond yields moved beyond 8 per cent.įoreign investors have been wary about India’s burgeoning fiscal deficit and the uphill task that the Centre faces in financing this deficit, for some time now. The rupee is extremely sensitive to the fund flows into the debt market.įoreign portfolio investors pull money out of Indian debt when yields on Indian bonds spike or increase in their home country. The connecting link between US bond yields and the rupee is - FPI inflows in Indian debt. The primary reason behind the rupee’s plunge on Friday was the spike in the bond yields in the US and other countries on the expectation that growth will revive and inflation will pick-up. But there are other inherent problems dogging the rupee. The RBI’s US dollar purchases to bolster its reserves could be one reason for the rupee weakness. While the rupee has been steadily appreciating against the greenback since last April, the performance of the Indian rupee compared to other emerging market currencies is quite weak.įor instance, the Chinese yuan, Taiwanese dollar, South Korean won and Philippines’ peso have appreciated over 4 per cent against the dollar since the beginning of 2020, while the rupee is down 3.3 per cent in this period. The rupee’s strength was mainly due to the weakness in the dollar and foreign portfolio inflows in the equity market.īut the mayhem in financial markets towards the end of last week has reversed these gains. The Indian currency had been gradually appreciating against the dollar since the beginning of this year, gaining almost one per cent, until February 25. The rupee’s sudden fall on Friday, amounting to 1.4 per cent, took the currency market by surprise.
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