The Indian rupee was one of the worst performing currencies in Asia in 2020. It failed to take advantage of the weak US dollar and unprecedented inflow of foreign funds.
During the calendar year, the rupee was down 3.28% against the US dollar as the Reserve Bank of India remained firmly in control of the local currency.
The only currency that has slightly underperformed the Indian rupee is the Pakistani rupee (down 3.53%) as the country is burdened with foreign debt.
The Indian rupee, unlike its Asian counterparts, could not benefit from a weak dollar and a strong inflow of foreign funds because the Reserve Bank of India had intervened heavily in the foreign exchange market.
Aside from India and Pakistan, the Thai baht (which is heavily dependent on tourism) is the only currency that depreciated in 2020 with a decline of 1.42%.
“One of the reasons the rupee has remained stable or has not been valued compared to its peers is because RBI intervened in the markets on both the sell and buy sides,” said Sriram Iyer, senior research analyst at Reliance Securities said.
During the year, the RBI continued to buy the weak US dollar, increasing demand for the greenback against the Indian rupee. According to the RBI, the bank’s foreign exchange reserves are at a record high of USD 579.35 billion and foreign exchange reserves are at a high level of USD 537.39 billion.
The central bank also admitted at its December monetary policy meeting that currency interventions are no longer just about managing volatility, but allowing the exchange rate to move in an orderly fashion in line with underlying domestic fundamentals.
“We continue to see the rupee underperform despite huge inflows from foreign funds into domestic markets, even as global central banks maintain their accommodative monetary stance and the major economies maintain their loose fiscal stance,” said Iyer.