India’s Rupee declined on Monday, finishing the month and quarter marginally lower as it lagged behind most Asian currencies.
This was due to subdued portfolio inflows and pressure from the country’s external investment deficit.
The Rupee closed at 85.7550 against the US Dollar, slipping 0.3% for the day and recording small losses of 0.2% for the month and 0.3% for the quarter, underperforming many of its Asian counterparts despite a general weakening of the Dollar.
Although the Indian Rupee has remained largely unchanged this year, several Asian currencies have seen notable gains, Reuters news agency reports.
Taiwan’s Dollar and the Korean Won have appreciated nearly 13% and 8% year-to-date, respectively, while the offshore Chinese Yuan, a closely watched peer, has risen more than 2%.
Analysts point to India’s external investment deficit as a major factor contributing to the Rupee’s weaker performance.
Investors have turned their attention to the external investment positions of Asian countries as they seek to hedge against the ongoing weakness of the Dollar, which has strengthened the currencies of nations with significant investment surpluses, such as Korea and Taiwan.
The Dollar index has dropped more than 10% year-to-date, weighed down by concerns over US trade and fiscal policies, uncertainties about the Federal Reserve’s future independence, and expectations of forthcoming cuts to benchmark interest rates.
In addition, muted portfolio flows have also weighed on the Rupee, with foreign investors net withdrawing around $0.5 billion from Indian stocks and bonds during the April-June quarter.
Despite this relative underperformance, analysts remain optimistic that a generally weaker Dollar will provide support for the Rupee moving forward.
“We see scope for USD/INR to consolidate in an 84-86 range with a downside bias,” according to a DBS note, adding they would consider reducing their USD/INR forecast if the US Federal Reserve shifts toward cutting interest rates later this year, which could further weaken the Dollar.
On the day, traders noted that Dollar buying by foreign and state-run banks put pressure on the Rupee, even as most other Asian currencies recorded gains.