Key Takeaways
- Indian rupee among worst performers in Asia this quarter.
- Currency down 0.7% on the month and 1.2% in Q3.
- Reserve Bank of India interventions help avert steeper losses.
The Indian rupee has struggled this quarter, ranking among the worst performers in Asia, according to market analysts. The currency declined by 0.7% over the month and 1.2% in the July-September quarter, reflecting broader global economic pressures.
The Reserve Bank of India (RBI) has been actively intervening to support the currency, averting more significant losses. However, persistent headwinds from elevated crude prices and surging global bond yields have continued to weigh on the rupee.
Analysts at Goldman Sachs predict that the RBI’s monetary policy decision next week, expected to include a 25 basis point hike, will be a key driver for the currency’s performance. The central bank’s toolkit, including potential rate increases, is seen as a buffer against further depreciation.
The ongoing conflict in the Middle East has also contributed to inflation concerns, lifting bond yields to multi-year highs. This has had a negative impact on emerging market assets, including the Indian rupee. The yield on 10-year and 30-year US Treasuries increased by 80 basis points and 65 basis points, respectively, over the quarter, while Indian bonds saw a smaller increase of 40 basis points.
Equities in India have also underperformed regionally, with the benchmark stock index declining by 5% compared to a 1% gain for MSCI’s gauge of regional stocks. Foreign investors have continued to be cautious, particularly in the absence of clear artificial intelligence (AI) opportunities.
Despite the challenges, the RBI’s persistent dollar sales have helped the rupee avoid testing its record low of 96.96 per dollar, achieved in the previous quarter. Measures to strengthen India’s balance of payments, introduced in June, have collectively drawn inflows of $143 billion up to September 18, according to central bank data, providing a buffer to support the currency.
The upcoming RBI monetary policy decision is expected to be a critical factor in determining the rupee’s future trajectory. Markets anticipate a 25 basis point hike, which could provide some stability to the currency. However, the overall economic environment remains challenging, with global headwinds expected to continue impacting the rupee’s performance.
