Foreign Institutional Investor flows and the Indian Rupee

The Indian Rupee has depreciated more than 20% over the last three months. Has this got more room to go? We try to answer this question by analysing FII portfolio flows into the country, mainly in the context of developments taking place in the United States on the monetary policy side.

The down-slide in the Rupee was triggered in May 2013 when the United States Federal Reserve Bank (Fed) chairman, Ben Bernanke, indicated a potential reduction in its bond purchase programme later this year. The Fed chairman’s stance is supported by continual improvement in economic data in the US and has led many investors to believe that the Fed’s ultra-loose monetary policy (including near zero interest rates and quantitative easing (QE)) might be coming to an end.

Data source: Securities and Exchange Board of India (SEBI) – chart last updated on 1 Dec 2013

This article was first published in MarketExpress on 27 August 2013. For the rest of the article see….

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