Rupee is the worst performer in emerging Asia as RBI tries to lift economy

The RBI bought has about $18 billion of foreign exchange since the end of September.

The Reserve Bank of India’s efforts to support the flagging economy are turning out to be a bane for the rupee. The currency is the worst performer in emerging Asia this quarter, and analysts say that’s because the central bank is mopping up dollars gushing into local stocks and bonds.

The RBI bought has about $18 billion of foreign exchange since the end of September, according to estimates by Bloomberg Economics. While the purchases have propelled reserves to a record, the rupee has fallen about 0.7% since Sept. 30.

Weakness in the rupee despite robust inflows is seen as a sign the central bank wants to curb a sharp appreciation in the currency that can hurt exports. With slew of data pointing to weak economic activity, boosting shipments is high on agenda for the government.

“Part of the rupee’s under performance is deliberate,” said Mitul Kotecha, a senior EM strategist at TD Securities in Singapore. “Higher reserves prove that the central bank is probably making determined efforts to keep the rupee’s competitiveness.”

The RBI has said it does not target any particular level of exchange rate and steps in only to curb undue swings in the currency. Though, as the rupee was heading for its worst quarterly decline in a year in the three months ended September, Governor Shaktikanta Das said September 19 that the currency is fairly valued, indicating tolerance for a weaker rupee.