India’s rupee weakened further in real effective terms in April as oil price volatility, geopolitical tensions in West Asia and sustained pressure on the domestic currency continued to weigh on the exchange rate despite multiple interventions by the Reserve Bank of India.
Data released by the Reserve Bank of India on Friday showed the rupee’s 40-currency trade-weighted real effective exchange rate (REER) index fell for the fifth consecutive month to 90.96 in April from 92.57 in March, near a 13-year low. A lower REER indicates real depreciation of the currency and improved export competitiveness.
The rupee weakened around 0.1% against the US dollar during April even as the dollar index, which tracks the greenback against six major currencies, declined 1.8% during the month, indicating relative underperformance of the Indian currency.
In its monthly bulletin, RBI staff said the rupee’s movement during April was influenced by developments in West Asia and fluctuations in crude oil prices.
The Indian rupee depreciated in April, though the decline was limited by the temporary ceasefire announcement and various measures undertaken by RBI,” the central bank staff said in the State of the Economy article. Thereafter, the INR broadly mirrored the movement in crude oil prices, reflecting the developments in West Asia, it said.
The bulletin added that the rupee weakened in real effective terms due to depreciation in nominal effective terms along with relatively lower inflation in India compared with major trading partners.
The decline in REER comes amid heightened intervention by the RBI in both spot and forward currency markets to contain volatility in the rupee.
The RBI was a net seller of USD9.76 billion in the spot foreign exchange market in March as the rupee came under pressure from rising crude oil prices and geopolitical uncertainty.
The central bank’s outstanding net short forward dollar position also rose sharply to USD103.06 billion at the end of March from USD77.7 billion a month earlier, reflecting aggressive intervention to smooth volatility in the currency market.
The rupee had declined around 4% in March, its steepest monthly fall in more than six years, before later touching a record low of 96.96 against the US dollar earlier this month.
How it stacks
The 40-currency REER basket tracks the rupee against currencies of India’s major trading partners including the US, China, the European Union, Japan, the UAE, Saudi Arabia and the UK.lower inflation in India compared with major trading partners.
The decline in REER comes amid heightened intervention by the RBI in both spot and forward currency markets to contain volatility in the rupee.
The RBI was a net seller of USD9.76 billion in the spot foreign exchange market in March as the rupee came under pressure from rising crude oil prices and geopolitical uncertainty.
The central bank’s outstanding net short forward dollar position also rose sharply to USD103.06 billion at the end of March from USD77.7 billion a month earlier, reflecting aggressive intervention to smooth volatility in the currency market.
The rupee had declined around 4% in March, its steepest monthly fall in more than six years, before later touching a record low of 96.96 against the US dollar earlier this month.
The 40-currency REER basket tracks the rupee against currencies of India’s major trading partners including the US, China, the European Union, Japan, the UAE, Saudi Arabia and the UK.
