This Asian currency performed much better than Rupee, and it's not Renminbi, Baht or Ringgit

• Ripples effects of the Russia Ukraine war have ended up impacting currencies of emerging market countries.
• Last week, the rupee touched its highest 79 against the US dollar despite the Reserve Bank of India constant efforts to keep it from falling further.
• Experts believe the worst is yet to come as the rupee is expected to fall further to 82.

While the sharp volatility in rupee movement has kept the market nervous, Finance Minister Nirmala Sitharaman feels Indian currency is relatively better placed than other global currencies against the greenback.

"We are relatively better placed. We are not a closed economy. We are part of the globalized world. So, we will be impacted (by global developments)," the finance minister said at an event.

As per data, INR’s fall is in the same lines as currencies of China, Thailand and Malaysia. While Philippine Peso and Korean Won performed worse, only Indonesia’s Rupiah performed better than India’s currency.

China and others impacted in spite of current account surplus
According to a Motilal Oswal report, these Asian currencies were impacted in spite of a current account surplus and their central banks have not been as tight as India’s RBI in terms of their monetary policies.

India became a victim of ‘imported inflation’ after the Russia Ukraine war changed the currency dynamics across nations, after hitting supply chains, food reserves and exim policies.

“During a risk-off period, like the one we are currently in, the USD tends to strengthen, while emerging market currencies tend to weaken. Obviously, these sentiments will reflect in foreign capital flows as well. Lower capital inflows in EM economies during uncertain periods will affect their balance of payments (BOP), thus weakening their currency,” said the analyst at Motilal Oswal.

Here’s how Indian currency fared compared to other Asian currencies:

First half of 2022	Currencies against US dollar
India’s Rupee	6%
China’s Renminbi	5-5.5%
Malaysian Ringgit	5-5.5%
Thai Baht	5-5.5%
Philippine Peso	8-9%
Korean Won	8-9%
Indonesian Rupiah	4%

Another year of intense pain
The financial calendar has to change before the rupee value settles down, according to the Motilal Oswal report. In FY24, it predicts that the rupee to be around 77, indicating that there is pain in the near to long term.

At the start of the year, the rupee was hovering around 74-75 to the USD and has been falling ever since – touching 79 and hovering around it, since.

“A number of factors have led to the slide in INR – high crude oil prices, a widening merchandise trade deficit (and thus CAD), an expected deficit in the balance of payments (BOP), global uncertainty, among others,” added the report.

Last week, the Rupee hit two new lows despite RBI’s efforts to keep it from falling further. Experts believe the worst is yet to come as the rupee is expected to fall further to 82 as FII sell off turns aggressive day by day.

Much of it has to do with the rising crude oil prices – India’s largest import, foreign outflows from the Indian market which ate up liquidity and impacted the balance of payments.

FIIs sucked out ₹.2.22 lakh crore from the Indian markets including equity, debt and hybrid assets as compared to ₹50,000 crore inflows in 2021.

All these factors will also affect the rate at which India is expected to grow. Especially after RBI’s aggressive interest rate hikes since May. It was more surprising that the central bank made no changes to its GDP forecast, in spite of the unexpected rate hikes, the report said.

“Notwithstanding such sharp monetary tightening and rising concerns with regard to the global environment, what’s surprising is that RBI has kept its FY23 real GDP growth forecasts unchanged at 7.2% in its June 2022 monetary policy, same as market consensus. In contrast, we peg FY23 real GDP growth ~6.3%, slightly lower than the 6.4% projected earlier,” says the report.

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