Rupee seeing moderate volatility amid Fed actions

The Dollar Business Bureau

While global currencies are highly influenced by the actions of US Federal Reserve, Indian Rupee (INR) is witnessing a moderate volatility, as per a report released by Care Ratings. The course of international currencies is affected to a large extent whenever there is any increase, decrease or status quo of the interest rates by the US Fed. The INR has witnessed a moderate volatility by moving towards Rs.68-69 this year, it said.

According to Care Ratings, the volatility has been very high for the currencies of Argentina, Brazil, Australia, Mexico, Russia and South Africa. But the INR has behaved well this year due to selective intervention from the Reserve Bank of India (RBI). Other than the US Fed action, the INR is also being affected by the decline in trade deficit, current account deficit (CAD), FPI inflows and RBI interest rates.

The currencies of all other countries in the world has seen a negative trend. Explaining the reasons for this trend, Care Ratings said, this is mainly due to the assumption that high interest rates in the US will attract investments from countries all over the world to the US. In reality it has a negative impact on the currencies of other countries though the dollar gets strengthened. Every time the US Fed hikes 25 bps in interest rates, it would have an impact on investment inflows potentially.

On December 16 2015, the US Fed had increased the interest rates by 25 bps. With this, the American economy was made to believe to be on a recovery path. But, economic conditions showed otherwise as they turned uncertain from that time onwards, the report revealed.

The report further added that developing countries are expected to grow faster when compared to the developed ones. So, the latter would be showing improved growth relative to 2015.