Rupee gains against G10 currencies

Mumbai: The rupee is delivering its best performance since 2015 against a basket of the heaviest traded currencies, ignoring the life-time low it hit the past week against the US dollar. It gained nearly 3% year-to-date against the basket comprising the so-called G10 currencies and the US dollar, with the yen, the pound sterling and euro mostly contributing to the local unit’s rise versus its 7% loss against the greenback.

The performance underlines the fact that rupee’s weakness against the US currency isn’t because of any fragility in India’s macro scenario, said experts.

‘Not a Sign of Feeble Economy’

In the current context, this “clearly points to India’s prudent macro fundamentals, not usually seen in the past whenever the rupee slid to record lows”, said Madan Sabnavis, chief economist at

. “Any such appreciation will help curb imported inflation on goods from the non-dollar settlements,” he said.

The dollar has been gaining against all major currencies amid expectations of more interest rate hikes by the US Federal Reserve and its safe-haven appeal at a time when recession fears are rising globally.

“A short-term weakness in the rupee’s value does not necessarily mean a feeble economy,” said Ashhish Vaidya, managing director at DBS Bank. “I expect emerging market currencies including the rupee to outperform developed market currencies given the inflation-growth dynamics.”

The G10 currencies include the Swiss franc, Swedish krona, Danish krone, Norwegian krone and the dollars of Canada, Australia and New Zealand, beside the yen, pound sterling and euro.

The rupee gained the most against the yen at 10.76% this calendar year when the Japanese currency hit a 24-year low versus the US dollar. It rose 5.86% against the pound sterling, the highest since the Brexit referendum in 2016, and 4.74% against the euro.

On an average the rupee appreciated 2.79% against the G10 currencies plus the US dollar, show Bloomberg data compiled by ETIG. This is the sharpest since the 5.76% gain recorded in 2015. In between, the rupee gained only in two years against the basket of currencies – by 2.11% in 2019 and 0.57% last year.

“The rupee’s depreciation (against the US dollar) is not an India-specific problem but mainly reflects the dollar strength story against developed economies,” said B Prasanna, head of global trading at

. “The local unit’s strength against most of the G10 currencies only demonstrates that despite the sharp fall in the rupee’s value to the dollar, other currencies are losing value at a much faster pace.”

The Dollar Index, which measures the unit against major currencies, rose more than 12% this year.

The rupee’s latest lifetime low against the dollar was 79.96 a dollar reported last Friday. However, the pair crossed the 80 market Thursday evening on the over the counter and derivatives markets.

However, the Real Effective Exchange Rate index, based on a 40-currency universe, yielded 104.18 in June versus 104.78 a month earlier, show latest Reserve Bank of India data. This means, the rupee is still overvalued by nearly 5%, despite the value erosion against the US dollar.

Prasanna of ICICI Bank said India saw large inflows of foreign investment during the pandemic years, but the rupee never appreciated during that time as the RBI worked to absorb the dollars and had built a war chest.

Foreign portfolio investors invested a net of $40.5 billion in the calendar years 2019-2021, show data from NSDL, a depository. However, they sold a net of nearly $31 billion this year, which is also weighing on the rupee.