Tough Get Going
Rupee likely to emerge unscathed from the ongoing Fed jitters
When it comes to handling Fed cycles , rupee’s record has been patchy and much less reassuring. Rupee got ruinously ravaged in much of the previous Fed cycles. That has prompted some of the seasoned pundits to raise an alarm on rupee ahead of Fed rate hike this week. More so , with rupee briefly breaching an important technical level of 67 on Monday. Is this time different.
Markets rarely wait for the event and they discount it much ahead. If that is the case, currency markets ought to have already factored the impending Fed hike, much of it if not fully. If the wobble in the world currencies over past few weeks is anything to go by, most of the emerging market currencies have already been mauled by the manic markets and further damage if any is least likely. If one is looking for more comfort on this, it can come from the way the dollar index has been dancing. After briefly breaking 100+ a week back, it has come back to settle around 97-98 level (closer to the fed event), reflecting some retracement in currency markets.
If much of the mayhem is already over, then it is not unreasonable to say that rupee has emerged relatively unscathed in this cycle. Look at the chart below that captures the performance of the emerging market currencies in the current year. Rupee has barely budged with just about 5%+ fall this year while the average fall for other currencies have been around 15%+.
While much of the credit for this stellar performance goes to improved macro on cheap crude, surge in FDI flows on new Govt’s friendly foreign policies and central banker Rajan’s rock-star credentials have contributed no less. This time is quite different as rupee is in safer hands.