Analysts Reveal Reasons for Stronger Rupee Relative to American Dollar Despite Historic GDP Fall

04:47' PM - Monday, 26/10/2020

The Indian rupee has gained significantly relative to the US dollar in the last six months. Almost a month into the pandemic in April, the rupee fell to record lows against the dollar and, in a spectacular rebound, clawed back over 5 percent.

Amid a raging coronavirus pandemic over the last six months, the Indian rupee has gained phenomenally against the US dollar. From being slightly over INR 77 against the dollar in April, the Indian currency has strengthened to INR 73.58 on Wednesday. Brokerage House India Infoline said on Wednesday that renewed optimism surrounding hopes of a second economic stimulus package in the US, capital inflows and strong domestic equities are likely to help the Indian currency gain more ground relative to the dollar.

The upswing in the rupee comes at a time when the Indian economy has been marooned due to the impact of pandemic lockdowns and restrictions.

In the first quarter (April–June) of the current financial year (2020-21), which ends in March 2021, India’s Gross Domestic Product contracted an astonishing 23.9 percent, compared with the same period last year.

Experts attribute the rupee's rebound to gains on the balance of trade, inflows from foreign institutional investors and mega investment by Facebook and Google in the Reliance Jio platforms.

Rahul K Mishra, a professor of strategy and international management at the IILM Institute of Higher Education, told Sputnik that there are a couple of reasons for the rupee’s appreciation over the past six months.

“First and foremost is the balance of payment issue. Current account deficit, which is when imports exceed exports, has come down. In fact we have current account surplus,” he said.

Pointing at reduced imports amid the pandemic as one reason for the strengthening rupee, journalist Geetu Moza, who tracks the financial and equity markets, told Sputnik: “India’s imports have come down by over 30 percent as an impact of the pandemic due to which outflow of dollar is restrained. That’s creating an oversupply of the US dollar.”

Data from the Indian government reveals that as imports slow on account of the pandemic, an oversupply of the dollar is being created in the Indian economy. -VNN-

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