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After falling 10 per cent against the greenback in 2022, the rupee staged a comeback in 2023 as it appreciated, albeit marginally, on the back of strong portfolio inflows, in addition to timely intervention by the Reserve Bank of India.
The Indian unit appreciated by 0.16 percent in six months until June 28.
The rupee stood in third place in terms of appreciation against the US dollar among the 12 Asian currencies and in 12th place of the 23 emerging-market currencies.
Moreover, the Indian rupee has turned out to be one of the most stable currencies, with implied volatility at its lowest level since 2008.
The strengthening of the rupee can be attributed to several factors — mainly strong foreign portfolio investments (FPI) inflows driven by robust macroeconomic fundamentals.
India’s gross domestic product (GDP) growth rose sharply to 6.1 per cent in January-March, from 4.5 per cent in October-December.
The net FPI inflow has been positive on a month-on-month basis, with net inflow of Rs 5,900 crore in March, and Rs 13,500 crore in April.
May witnessed a net inflow of Rs 48,300 crore, and in June (July 5), there was a net inflow of about Rs 29,000 crore.
Consumer Price Index-based inflation has also started softening, falling to a 24-month low in May to 4.25 per cent.
“Being an import-driven country, Brent crude prices being in a narrow range of $70-80 per barrel remains a big positive for India, and GDP numbers forecast between 6.1 per cent and 6.3 per cent is quite optimistic,” says Kunal Sodhani, vice-president, Shinhan Bank.
The rupee has moved within a band of Rs 81.5 per dollar to Rs 83 per dollar in six months.
“The RBI has neither allowed the rupee to appreciate much nor allowed it to depreciate,” says Anil Kumar Bhansali, head-treasury, Finrex Treasury Advisors.
