The Covid-19 pandemic has thrown the Indian economy into an unprecedented recession. Hundreds of small businesses have shuttered, unemployment is on the rise, and household incomes are dwindling. But despite this upheaval, the Indian currency has remained surprisingly stable, which is a remarkable thing, but, how?
Just in that case, India remains a favored destination for investors because of the low per capita income in comparison to other Asian economies. Moving on ahead, are other basic reasons acquired by Indian Rupee for its support.
On 7th of July, Indian Rupee valued 74.62 dollar as compared to the 75.66 dollar in March, 2020, when covid reached Indian premises. In April, the rupee touched a record low of 76.92 against a dollar. There was nervousness among global investors, which was also evident in the stock markets that went into a near tailspin.
However, India’s central bank quickly sprung into action to calm nerves. The Reserve Bank of India (RBI) called for at least three unscheduled briefings for policy announcements, to show its seriousness towards supporting the economy. The central bank took some unprecedented measures, including reducing the repo rate—the rate at which it lends to banks—by 115 basis points until now.
The measure was aimed at encouraging banks to lend money to businesses so they could survive the tough lockdowns. In fact, several central banks across the world did the same, and that worked in India’s favour. So basically, even when the Indian economy was staring at a recession, foreign investors were putting their money into the country.
Experts believe that a combination of global and domestic factors has helped the rupee to remain strong, and most of the reasons are linked to the positive long-term outlook on India. “People digested the fact that lockdown would lead to a contraction in the economy very quickly. They focused on how fast the economy was pulling out of it,” Abheek Barua, chief economist of HDFC Bank said. “So the rupee outperformed its Asian emerging market peers.” What also helped India is the fact that it has a higher capacity to absorb shocks as compared to its Asian peers, according to experts. “(Take) Thailand’s case, for instance. Tourism is such a big support and that has collapsed. Investment opportunities, in general, were already limited in these economies. They are a little too expensive in terms of wage levels to offer serious offshoring opportunities,” Barua said. Most experts are of the view that despite the devastating second wave of Covid-19 and the anticipation of the third wave by August, the Indian rupee is likely to remain strong in the long run.
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