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  • Rupee recovers back from historic lows, ends FY14 with 10% loss

    Published on March 31, 2014

    The rupee has ended the fiscal with a loss of over 10 per cent against the US dollar, clawing back from its lifetime low hit in August and becoming one of the best performing Asian currencies.

    rupeeOn the last trading session of this fiscal on March 28, the rupee ended at 59.91, an eight-month high. On the last day of the fiscal today, the forex market was shut for a local holiday.

    The Indian unit started off the year on a healthy note, but began to lose ground after then US Federal Reserve Chairman Ben Bernanke hinted at withdrawing its easy money policy on May 23, which led to a massive flight of capital from across the emerging markets (EMs).

    However, the domestic currency was the worst hit due to the high current account deficit which stood at 4.8 per cent of GDP in FY 2013. But it is likely to be USD 35 billion in 2013-14, Finance Minister P Chidambaram has said.

    On August 28, the rupee touched an intra-day low of 68.85, a 34 per cent plunge from the start of FY 2014. Between May 23 and August 28, it dropped nearly 22 per cent. The hint from the world’s largest central bank spooked overseas investors and they started pulling out their investments from the Indian market.

    FIIs pulled out over USD 14 billion from India’s debt market and over USD 3 billion from equities between May end and August end. The rupee started making smart recovery after new RBI Governor Raghuram Rajan took charge on September 4.

    One major step in the pre-Rajan era was on August 28, when the then Governor D Subbarao opened a special forex swap window to meet oil companies’ daily dollar requirements. This was meant to contain volatility in the forex market.

    On assuming charge, Rajan announced a slew of measures like enhancing limit to re-book cancelled forward exchange contracts, opening of a swap window to collect more FCNR-B dollar funds, among others, to boost the local currency. Higher inflows from overseas investors also helped the rupee rise from its historic low.

    Marketmen and analysts have attributed the strength of the rupee, apart from improving macro-fundamentals like lower fiscal deficit (4.6%), a lower CAD (sub-2%), to expectations of a stable government after the Lok Sabha polls.