PersonalFN
Jun 30, 2016 · 3 min read

6 Reasons Why Indian Rupee Has Remained Strong Post-Brexit

If you type “Brexit” in Google, the search engine throws up 14.4 crore results. This might be enough to give you some idea of how widely the event of the UK exiting the European Union (EU) is being discussed.

Results of the British referendum Choices Votes The country should “Leave” the European Union 51.90% The country should “Remain” the European Union 48.10% (Source: BBC)

It’s natural for people around the globe to track the Brexit as it is bound to cause disruptions in the global economy. Britain’s exit endangers the existence of integrated Europe. Europe was not merely a club of 28 countries but was a powerful union integrating countries, people, cultures, and businesses. If it disintegrates, trade and political equations might change permanently. Whenever such events happen, the first impact is felt on the currencies of affected nations as investors flee from troubled territories.

Indian currency has remained stable Currency Change against US$
after Brexit Japanese Yen 3.19% Brazilian Real 1.03% Indian Rupee -0.64% Russian Rubble -0.95% Chinese Yuan -1.08% Turkish Lira -1.75% Canadian Dollar -1.94% Swiss Franc -2.40% Euro -2.81% Norwegian Krone -3.83% Pound Sterling -9.84% Data as on June 28, 2016
(Source: Bloomberg.com)

As the table above shows, Pound Sterling has depreciated 9.84% since the Britain decided to exit EU. The other European nations felt the repercussions of the event and their currencies too depreciated. In comparison, Indian Rupee has remained resilient and has declined by just 0.64%.

Why India’s currency has outperformed the other leading currencies of the world?

  1. Both, the Finance Ministry and the Central Bank have shown trust in India’s robust fundamentals and have hinted at their preparedness to handle the challenges arising in the aftermath of Brexit.
  2. At present, the UK accounts for nearly 15% of India’s merchandise trade. However, its share has been going down year after year. There’s hope that, once the UK officially discontinues its membership with EU, it may try to establish a strong bilateral relationship with India. Therefore, Brexit is unlikely to have a significant direct impact on India.
  3. Since the process for the exit is lengthy and tedious, nothing really is going to change for Britain in the short run. This is expected to provide the time needed to make adjustments with stronger economies such as India. Therefore, there haven’t been many sell-offs in Indian markets post Brexit. Speaking to the media, even RBI’s Governor had warned investors against following exceedingly pessimistic approach towards the event of Brexit.
  4. Despite the falling exports, India’s Current Account Deficit (CAD) narrowed to 0.1% of GDP in Q4 FY Q4, FY 2015–16. Although it is expected to widen going forward, it is likely to stay in a comfort zone.
  5. Prediction of above average monsoon is negating the impact of rising food price inflation, at least for the time being.
  6. India has been sitting on forex reserves that have been adequate enough to pay nearly 10 month’s of the import bill.

PersonalFN is of the view that, although it doesn’t take much time for the economic conditions to change dramatically, in the context of Brexit, it is unlikely to change in the short run. Given that fundamentals of Indian economy remain strong, Indian Rupee is unlikely to perform as miserably as it did in 2013. That being said, speculating on the movement of Rupee would be dangerous, and you should avoid it.

This article was originally published on www.personalfn.com

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