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India’s currency has shifted from the emerging leader to the backward market as the country struggles with a new fierce wave of coronaviruses, prompting concern among global investors that a nascent economic recovery is collapsing.
The rupee has fallen about 3% to $ 75.14 since early April, the worst performance among a basket of two dozen emerging markets followed by Bloomberg, which includes the Russian ruble and the Turkish lira.
This represents a strong investment after a stellar start of India’s currency in 2021. A rise of just under 1% between January and March meant that the rupee was the only currency in the emerging market. which was gaining ground on the dollar.
It follows the fall of the currency an increase in Covid-19 cases this has overwhelmed India’s health systems and sparked public outrage as the government struggles to supply enough vaccines. It will likely also exacerbate India’s financial problems and complicate the central bank’s plans to use monetary stimulus to soften the economic blow.
“Growing virus cases are affecting everything,” said Kiyong Seong, an Asian strategist at Société Générale, who noted a sell-off in Indian stocks that has boosted the benchmark Sensex index by more than 5 % lowest since reaching all-time high in February.
The country reported more than 260,000 new cases of Covid-19 on Saturday, more than anywhere else in the world, and nearly 1,500 dead.
The increase in cases has led to a series of blockages and curfews, which analysts fear could upset what was expected to be a solid economic and business recovery of last year’s contraction.
“All of this will have a spiral effect,” said Navneet Damani, currency analyst at brokerage Motilal Oswal. “It’s not a very good sign.”
Analysts said the recent monetary policy statement and the commitment of the Reserve Bank of India and the commitment to buy Rs1tn ($ 13 billion) of India’s public debt this month have spurred investors to stop ‘bets on the continuous rise of the rupee. The potential of gross domestic product and declining profits also weigh on the rupee.
“The aggressive resurgence of the Covid-19 pandemic is beginning to affect growth prospects,” ANZ economists wrote in a note. “Corporate profit forecasts may be lowered in the coming months and foreign portfolio flows may suffer.”
Foreign investors have abandoned Indian assets due to concerns about the country’s growth prospects, selling more than 40 billion euros in shares so far in April, marking the first net outflows of this kind since September.
“Until we get clarity on the Covid scenario,” said Abhishek Goenka, chief executive of consulting firm IFA Global, “I think it is likely that the weakness of the rupee will continue.”
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