The last day of the week gone by changed the trend of Indian currency market with the rupee suddenly appreciating 50 paise in a day to close at 67.775 against the US dollar. The Indian currency has been quite volatile since the beginning of this calendar (2018).
From its high of 63.27 hit on January 5, the rupee depreciated to 65.08 at the end of March 2018. It further depreciated to as low as 68.48 (intra- day) on May 23 before closing at 67.775 on May 25.
If we go a little back in History, the rupee had seen its all-time low at 68.85 on August 27, 2013, a period post taper tantrum and India’s inclusion in the ‘Fragile Five’ alongside Turkey, Argentina, Indonesia and South Africa due to high twin deficits, viz current account deficit and fiscal deficit at 4.8 per cent and 4.5 per cent of GDP respectively.
With a series of measures announced by RBI immediately thereafter, the fall of the rupee into a bottomless pit was stemmed and the domestic unit recovered considerably to close at 61.80, a rebound of more than 10 per cent in four months. With the exuberance of capital markets since the beginning of 2014, expecting a new stable reformist government, huge forex flows into India led to a steep appreciation of the currency with continued high volatility taking the USD-INR pare to 58.4 by May 2014. With massive intervention by RBI to reduce volatility and build up stronger forex reserves, a journey leading to a measured gradual rupee depreciation begun and continued till as late as December 2016.
During this period, crude oil prices had softened to below $30 a barrel. With lower import bill and massive capital flows, also in the form of FDI for two consecutive years at $40 billion plus, the rupee started to appreciate again despite continuous accretion to forex reserves through RBI intervention. Calendar 2017 saw the rupee appreciate more than 6 per cent against the US dollar.
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