The falling rupee sent a ripple but there is no cause for alarm, as yet. For, the currency has been among the strongest performers among emerging market currencies if the return from January is considered.
The rupee’s 5.2 per cent decline against the greenback since January is no comparison to the declines in the Brazilian Real (-31 per cent), South African Rand (-17 per cent), Russian Ruble (-15 per cent) or the Indonesian Rupiah (-13 per cent).
If these currencies were hammered due to their countries’ reliance on commodity exports, the rupee has been resilient since India is a net commodity importer. Falling inflation, comfortable forex reserves and the best real rate of interest helped too.
The rupee has weathered the ongoing FPI exit well. The $500 million of FPI money that has moved out of the equity market is among the highest in emerging markets. Yet, the rupee has lost under 1 per cent against the dollar.
With a $352-billion war chest, the RBI is also well prepared to defend the rupee. However, these are early days and it is to be seen if this resilience will sustain if Janet Yellen does set off the rate hike cycle this week.