The rupee paradox: FII inflows fuel market rally, but the currency is down. Here’s why
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Synopsis
Experts feel RBI intervention is keeping the rupee low, which also helps exports. The only way to control the fall was to keep increasing the already high interest rates. According to them, several factors such as trade deficit, nature of forex reserves and interest rate differential with the US are behind the currency dynamics.
Over the past six months, India received a significant amount of foreign investor flows in its equity markets. Such flows generally lead to currency appreciation against the US dollar. But between March 2023 and August 25, the rupee has fallen to around 83.5 against USD from 81.5. This depreciation is milder when compared with the fall in other emerging-market currencies against the USD. The rupee is expected to maintain a downward bias in the