Rebound in major currencies gives break to real rupee strength

In March, the Indian rupee gained over 3% against the US dollar after reaching record lows of 68.70 in February. The appreciation has assisted the unit to greatly reduce its year-to-date losses. However, the rupee still lags the scale of rebound witnessed in other Asian currencies. In March, foreign equity inflows to India rose sharply to USD 2.9 billion; however, outflows reached USD 0.5 billion.

By February 2016, the rupee, on a nominal effective exchange rate basis declined 3% on a year-to date basis. According to DBS Bank, this correction shows the recovery of yen and euro in recent months in spite of their central banks rolling out additional stimulus measures. The real rupee strength has received a break from the tentative rebound in major currencies, says DBS Bank.

This partially comforts worries regarding impact on competitiveness of trade and manufacturing, added DBS Bank. Meanwhile, authorities are likely to build reserves. These expectations are bolstered by the recent reserves’ release as the stock rose to a record high of USD 356 billion in March, according to DBS Bank.