A rising US dollar has put tremendous pressure on the Indian rupee over the past three months, but the Reserve Bank of India (RBI) has managed to keep the currency by and large stable. The dollar index, which is trading above 100 level against basket of currencies, does not always spell good news for emerging market currencies as well as equity markets such as India.
RBI is suspected to have intervened heavily to curb the rupee’s sharp slide over the past seven days when overseas investors sold local shares, leading to strong outflows. The rally in the US dollar has weighed on most emerging market currencies including the rupee, Indonesian rupiah, Thai baht, Philippines peso and Malaysian Ringgit.
The Chinese yuan has also come under pressure and is down over 3 per cent in last three months and around 10 per cent on an annual basis. India is better placed compared with other emerging market economies and the rupee may feel the heat in the near term, falling possibly to the 70 level. But strong FII inflows in the long term would restrict any major fall in the rupee.
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