Analysis of recent Rupee appreciation

Can an unintended remark of a person bring you fortunes ? 

Yes, not only to you if you are a NRI, but also to millions of your like. That is precisely what happened when Subir Gokarna, the Deputy Governor of RBI remarked to a probing journalist that RBI will not intervene to prevent the depreciation of Rupee. 

Sharks in the game of currency speculation sensed blood and shorted the rupee knowing very well that regulator won't intervene. Rest is history. Rupee bottomed at 54.40 to a dollar.  

The subsequent attempts of RBI to shore up the rupee brought fortune after fortune to NRI community.  

More rupees to a dollar, more interest on NRI deposits with tax free status and repatriabilty, benefit of interest rate arbitrage across countries are all new year gifts of RBI to Indian diaspora spread across globe. 

Thank you Subir, from the bottom of my heart- so says every NRI now

Why did the rupee appreciate ? Where did it find it's strength.? Has dollar lost value against other currencies too ? Did Indian imports dried up overnight ? Or did our exports went through the roof ? 

Answer lies else where!!!  

Dollar did not budge against other currencies. Dollar index, 'Dollex', a measure of dollar strength is still hovering around 81. Rupee genuinely appreciated against dollar. 

Import of one commodity came down drastically, believe it or not, Gold imports fell. Gold is third biggest import of our country.That is positive for rupee. 

No other major changes in imports or exports till now, that's neutral for rupee. No appreciable inflow of FII money to stock markets, what came in was a trickle, not even sufficient to make a difference. 

Increased debt ceiling for FII to participate in Government securities by 5 billions( the opportunity closed on 15th Jan) brought in huge flows in December as well as in January. Buyers will make money on increase in bond rates when interest rate starts going down shortly. Hugely positive for rupee. 

Flood of NRI money to NRI deposits to profit from interest rate arbitrage world wide. Interest rates are close to zero in US, Europe , Japan and all over the developed world. All those who can borrow cheaply from their banks, friends, employers have done their best.  

Every NRI has a story to tell now for decades. It is this flood of dollars into the country which made tremendous difference. 

Now come two more participants, the exporters and short sellers. Exporters hurry to bring in held back dollars now. Supply of dollar increased. Short sellers cover their short positions aggressively. Demand for rupee went through the roof. 

Net result - Rupee appreciates at rocket speed. Dollar languishes!!

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