Rupee has become best currency in Asia Pacific 

Due to incoming of new stable government, capital inflows in the market have increased tremendously. Due to this, rupee surge to 11-month high levels which has made it the best performing currency in Asia-Pacific region against the US dollar so far in 2014.

 

India will see more positives emerging and foreign inflows rising so long as the government and the central bank work in tandem. While the election results have buoyed optimism about India’s policies, the central bank may restrain exchange-rate gains that would threaten the nation’s exports. The RBI intervened in the foreign-exchange market on May 16 to curb currency volatility, limiting gains in the rupee, according to four traders who asked not to be identified because the information isn’t public. India’s currency reserves have risen $39 billion from a three-year low in September to $314 billion, the latest official figures show, signaling the monetary authority has bought dollars.

 

Main highlights:

 

a) Rupee has gained about 5.3 per cent since the start of 2014, rupee has sprinted ahead of its other Asia-Pacific peers, including Indonesia's rupiah and New Zealand dollar, in terms of year-to-date rise, shows an analysis of various currencies vis-a-vis the Greenback.

 

b) The Indian currency stood at Rs 61.8 level per US dollar at the start of 2014 and has recorded a gain of 327 paise in less than six months, partly helped by robust foreign fund inflows. This marks a major turnaround since August last year when rupee touched its lifetime low of 68.80.

 

c) In Asia-Pacific, the rupee's gains versus the US dollar are followed by the Rupiah (Indonesia) that has appreciated 4.6 per cent, New Zealand dollar's 3.75 per cent rise and Australian currency's 3.5 per cent rise.

 

d) The Yen (Japan), the Won (South Korea) and the Ringgit (Malaysia) have gained between 2-3 per cent in this calendar year so far.

 

e) Philippines Peso has appreciated 1.6 per cent against the US dollar, followed by 0.5 per cent uptick in Thailand's Baht and Singaporean dollar. While the Hong Kong dollar is almost unchanged since 2014 started, the Taiwan dollar and Chinese Yuan have lost value.

 

Brief background:

 

The Asia-Pacific encompasses numerous countries including Australia and New Zealand in the South and its locus in the Association of South East Asian Nations (ASEAN). In a world where bulks of the consumers in most countries reside outside the country’s border, Asia Pacific Economic Cooperation (APEC) itself comprises 40 per cent of the global population. Many of these economies are growing faster than the world average and have together generated 56 per cent of global GDP.

 

India has signed The Asia-Pacific Trade Agreement (APTA), formerly known as the Bangkok Agreement, on 31st of July 1975 as an initiative of the United Nations Economic and Social Commission for Asia and the Pacific (ESCAP).

 

The objectives of the agreement is to promote economic development through a continuous process of trade expansion among the developing member countries of ESCAP and to further international economic cooperation through the adoption of mutually beneficial trade liberalization measures consistent with their respective present and future development and trade needs, and taking into account the trading interest of third countries, particularly those of other developing counties.

 

Discuss 

 

• What are the steps new Government should take to improve trade relations with Asia Pacific region?

• FII is hot money, thus FDI should be preferred. Explain with examples and steps taken to improve FDI over FII.