USDINR in September 2017 - Quo Vadis?
Written on 28th September 2017 morning.. Commentators have expressed surprise at the sharp move up in USDINR, from 63.80 just 20 days ago, to over 65.80 now. What has caused this sharp move up? Who has been buying USD? We were just celebrating the rapid rise in RBI's FX reserves t beyond $400B, what has changed the past 3 weeks? All legitimate questions, and am sure answers will emerge. However, I believe that to understand the sharp move up, we have to understand the vulnerability that built up over time. A pertinent question to ask is - who was selling USDINR earlier? Since the beginning of 2017, RBI has net purchased over $25B in the spot market, in addition to over $30B in the FX forward market. Where has all this FCY come from? India's current account deficit is barely covered by our FDI net inflows and FPI investments in equity. These are the closest to permanent sources of FCY into any country. So if permanent net sources of FCY cannot explain the $55B of