Rupee rebounds as new governor takes charge

India's currency has been lifted from its record lows as Raghuram Rajan prepares to take the helm at the central bank.

The rupee rebounded sharply from near record lows on Wednesday as India prepared to invest Raghuram Rajan as the new governor of the Reserve Bank of India. According to Bloomberg, the central bank intervened to prevent the ailing currency falling below its all-time low of 68.8450 per dollar, reached last week, by easing overseas borrowing rules and (it's suspected by currency dealers) heavy US dollar selling. The measures pushed the rupee up 1% to 67.09 per dollar.

India's currency has fallen by 11.5% this quarter the worst performance by 24 emerging-market currencies followed by Bloomberg and is down 20% since the end of 2012. Rajan, a former chief economist at the International Monetary Fund, and one of the first to predict the 2008 financial crisis, starts his new job as the country faces its worst economic crisis for 20 years. Although it's unclear what his approach will be, he faces many challenges besides the rupee.

According to Reuters, figures out this week showed activity in India's services sector shrunk for the second month in a row, its worst showing for four years. Manufacturing and mining activity is also down. Data out last week revealed that annual GDP growth fell to 4.4% from April to June. India has a record current-account deficit and further pressure on the rupee is coming from rising oil and gold prices.

The government plans a number of reforms to boost economic confidence, such as an increase in subsidised fuel prices, but many foreign investors have little faith that it will push these through. Emerging markets are also being pressured by the prospect of the US Federal Reserve tapering quantitative easing: ahead of this week's G20 summit, India's prime minister Manmohan Singh called for developed countries to help emerging markets by managing an "orderly exit" from QE. One thing is for sure Rajan has his hands full.

Recommended

I wish I knew what an emerging market was, but I’m too embarrassed to ask
Too embarrassed to ask

I wish I knew what an emerging market was, but I’m too embarrassed to ask

This week's “too embarrassed to ask” explains what emerging markets are, and why you might want to invest in them.
9 Sep 2020
Bullish investors return to emerging markets
Stockmarkets

Bullish investors return to emerging markets

The ink had barely dried on the US-China trade deal before the bulls began pouring into emerging markets.
27 Jan 2020
The currencies to bet on this year
Currencies

The currencies to bet on this year

The US dollar could be set to weaken this year, while the euro, Canadian dollar and the Swiss franc could be good bets for optimistic traders.
17 Jan 2020
Beware the hidden risks when investing in emerging markets
Investment strategy

Beware the hidden risks when investing in emerging markets

Emerging markets look cheap compared with developed countries, but earnings may be less trustworthy.
23 Dec 2019

Most Popular

Will a second wave of Covid lead to another stockmarket crash?
Stockmarkets

Will a second wave of Covid lead to another stockmarket crash?

Can we expect to see another lockdown like in March, and what will that mean for your money? John Stepek explains.
18 Sep 2020
Here’s why you really should own at least some bitcoin
Bitcoin

Here’s why you really should own at least some bitcoin

While bitcoin is having a quiet year – at least in relative terms – its potential to become the default cash system for the internet is undiminished, …
16 Sep 2020
James Ferguson: How bad data is driving fear of a second wave of Covid-19
UK Economy

James Ferguson: How bad data is driving fear of a second wave of Covid-19

Merryn and John talk to MoneyWeek regular James Ferguson about the rise in infections in coronavirus and what the data is really telling us.
17 Sep 2020