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The Economic Times

Strong macros keep rupee out of the 'troubled ten' currencies

In August 2013, when the US Fed gave a time to phase out easy money policy, India figured in the pack of ‘fragile five’ emerging market currencies that could come under pressure. But, this time round, after the yuan devaluation, the rupee is not in the basket of ‘troubled ten” currencies – a new term coined in the global currency market for units particularly vulnerable to the resetting of exchange rate by China.

Though the rupee has dipped recently and could be let to slide slowly, its depreciation so far has been one of the lowest in EM. Indeed, some brokerages believe that the rupee is likely to outperform currencies in the EM universe.

For instance, a Citigroup report says that India is less vulnerable to China’s currency depreciation through direct channels, but the rupee may still weaken. Traders say global investors in the offshore market, who had built long positions in EM currencies, may further unwind, and this could weaken these currencies, including the rupee.

When the Indian rupee figured in Morgan Stanley’s “Fragile Five” list nearly two years ago, it had plunged to a new low of 68.83 to a dollar. All those five currencies that were termed as ‘fragile’ were identified as the worst performers in 2013. But, since then, the fall of the Indian rupee has been limited to 5%, but many developing market currencies crashed by more than 20%. The Brazilian real and the South African rand, which were part of the ‘fragile five’, now figure in the ‘troubled ten’.
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