Dollar’s gains against rupee quite mild, say govt officials – Times of India

NEW DELHI: The Centre and the Reserve Bank of India (RBI) have been taking steps to attract dollar inflows to make the appreciation of the greenback against the rupee more gradual and smoother. This is being done even though the strength of the US currency against the rupee has been quite mild, government sources have pointed out.
They said that compared to previous occasions of dollar strength like in 2013 (‘Taper Tantrum’), 2008 (global financial crisis) and 1997-98 (Asian financial crisis), this time the strength of the greenback against the Indian rupee has been much more muted.
The sources said that in 2013, from May 3 to August 28, the US dollar strengthened from 53. 65 to 68. 80 rupees — an appreciation of 28%. In 2008, from February to October, the US dollar strengthened from 39. 12 rupees to 49. 96 rupees — again, a 28% appreciation of the US currency. Between August 1997 and August 1998, the US greenback strengthened by 22% against the Indian currency, the source said while citing data.
“The strength of the US dollar is due to the change in attitude towards risk-taking in financial markets. When interest rates are low and dollar supply is ample, investors take risks. They invest in the stock markets of emerging economies like India. Indian stock markets gained a lot in 2020 and in 2021 because of that willingness to take risks on the part of international investors,” said a source.
The rupee came very close to 80 levels against the US dollar, with the greenback being dealt at 79. 96 in the interbank foreign exchange market on Thursday. The RBI, which has been defending the rupee with dollar sales, said that foreign currency reserves fell by $8 billion during the week ended July 8 to a 15-month low of $580. 3 billion.
The volatility in the exchange rate has led to sparring between the government and opposition parties which have accused the authorities of mishandling the situation.
The sources pointed out that several factors such as soaring inflation across the world and the impact of the war in Ukraine, which led to a spike in oil prices, prompted investors to turn cautious and they began pulling money out of emerging markets like India. Foreign investors have pulled out nearly $31. 5 billion from the beginning of 2021-22 and up to July 15th in 2022-23, according to available data.
“All these factors have contributed to the strength of the US dollar against the Indian rupee. But, to reiterate, the US dollar has not strengthened only against the Indian rupee but also against many currencies, including other major currencies. In fact, the US dollar has strengthened more against those currencies than against the Indian rupee,” said the source.
“In other words, the rupee has strengthened against the euro, the Japanese yen and the British pound in 2022,” the source added.

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