Rupee snapshot

From being the worst performer among emerging market currencies in 2011, the rupee has outperformed all emerging market currencies in 2012. Corporates will find dealing with this volatility a challenge as several forecasters are now changing their 2012 projections for the domestic currency. The rupee has gained nearly 8.2% since the beginning of the year up to February 3, which is the highest appreciation compared to other Asian currency. After the rupee, the next biggest gainer has been the Brazilian lira which firmed up by 7.9% in January and the South African rand which has gained 6.6% against the dollar. All other currencies have gained less than 5%. On Tuesday, however, the local currency closed at 49.21, 15 paise lower than its previous close following dollar demand from importers. RBI’s measures to curb speculation and to prop the rupee coincided with macroeconomic developments turning favour of the domestic currency. At the international level the situation in Europe improved and the chances of a global shock following a default in Europe reduced considerably. Second, domestic factors also changed with reports in January of improved industrial production. This was topped with an easing of policy rates by RBI which reduced the CRR by half a percentage point on January 16.