© 1982-2022 MNI. All rights reserved.
Terms | Privacy
Log Out
Free Trial

Real-time Actionable Insight

Get the latest on Central Bank Policy and FX & FI Markets to help inform both your strategic and tactical decision-making.

Free Access
Trending Top 5
Topics

Rupee Reprieve Could Prove Temporary

INR
EM BulletBulletMarketsEmerging MarketsForeign Exchange

Spot USD/INR stabilized last week around record highs close to 77.50, following reports that the Indian authorities were intervening in the FX market. However, fundamentals still point to meaningful headwinds for the rupee.

  • It's difficult to make the case the INR is cheap from a long term perspective. The first chart below is the INR real effective exchange rate (REER). Current levels sit just below recent cyclical highs and we are only around 3% off record highs.
  • A large driver of the elevated REER for INR is the persistently stronger inflation rate in India compared to the rest of the world. Indeed, it has only been in the last 12 months or so that the rest of the world has seen inflation rates on par with those in India. Over the long term the positive CPI differential India has had with the rest of the world has more than offset INR nominal FX depreciation.

Fig 1: INR FX Still Expensive In Real Effective Terms

Keep reading...Show less
377 words

To read the full story

Why Subscribe to

MarketNews.com

MNI is the leading provider

of news and intelligence specifically for the Global Foreign Exchange and Fixed Income Markets, providing timely, relevant, and critical insight for market professionals and those who want to make informed investment decisions. We offer not simply news, but news analysis, linking breaking news to the effects on capital markets. Our exclusive information and intelligence moves markets.

Our credibility

for delivering mission-critical information has been built over three decades. The quality and experience of MNI's team of analysts and reporters across America, Asia and Europe truly sets us apart. Our Markets team includes former fixed-income specialists, currency traders, economists and strategists, who are able to combine expertise on macro economics, financial markets, and political risk to give a comprehensive and holistic insight on global markets.

Spot USD/INR stabilized last week around record highs close to 77.50, following reports that the Indian authorities were intervening in the FX market. However, fundamentals still point to meaningful headwinds for the rupee.

  • It's difficult to make the case the INR is cheap from a long term perspective. The first chart below is the INR real effective exchange rate (REER). Current levels sit just below recent cyclical highs and we are only around 3% off record highs.
  • A large driver of the elevated REER for INR is the persistently stronger inflation rate in India compared to the rest of the world. Indeed, it has only been in the last 12 months or so that the rest of the world has seen inflation rates on par with those in India. Over the long term the positive CPI differential India has had with the rest of the world has more than offset INR nominal FX depreciation.

Fig 1: INR FX Still Expensive In Real Effective Terms

Keep reading...Show less