India’s currency the rupee won a new title in September-it was crowned the worst performing currency in Asia! All indications show that this currency for more than 1.3 billion people will retain its negative title for a while as it continues to spiral down while the dollar appreciates thanks to big boosts from higher US interest rates.
According to monetary experts, the rupee was projected to be trading at 65.8 to the dollar by year’s end. However, analysts believe that looking at the current trend, the rupee will likely fall to 66 to the dollar and even further to 67 to the dollar before the end of the year.
During the last month, the US dollar saw its biggest appreciation for the year so far. The rise in the value of the dollar is linked to the Federal Reserve’s indication of a possible hike in interest rates next December as well as the new tax cuts announced by President Trump. As the US dollar enjoys a new leash of life, emerging-markets are getting closer scrutiny from investors and for this reason the Indian rupee has taken a hit.
The rupee went from being Asia’s best-performing currency during the first two quarters of the year, to its present new found infamous position as the worst performing in the continent. This has triggered a tsunami of repercussions. Foreigners are now getting rid of local stocks, and Indian corporations are reporting less than expected earnings. The economy is experiencing a huge slowdown as a result. On September 28, the rupee sunk to its lowest level in six months. This was as a result of fears of a looming fiscal stimulus package from the government of Prime Minister Narendra Modi before the 2019 elections. The prevalent perception is that any such fiscal stimulus intervention will further worsen the country’s public finances.
With the country facing an election sometime in May 2019, Prime Minister Modi’s government is considering a fiscal stimulus intervention that it hopes will be popular with voters. However, economists are characterizing that approach as a “populist move to fill the political potholes along the way to the elections.” As such experts are warning that any such interventions calculated just for political gain will instead further sink the economy. It may be long before we see the rupee back to the glorious position it enjoyed in the first half of 2017.