Rupee stuck in neutral as Asia's currencies race ahead on weak dollar

India Today

18 hours ago

As most Asian currencies ride the wave of a weakening US dollar, the Indian rupee could miss the rally, reported news agency Reuters, quoting analysts, who said the currency could be held back by a structural imbalance in India's external finances.While the Singapore dollar, Korean won, and Taiwanese dollar have jumped between 6% and 9.5% so far this year, the rupee has barely moved.advertisementAnalysts at Barclays, Jefferies, and ANZ attribute this underperformance to one key metric—the Net International Investment Position (NIIP)—the difference between a country's overseas assets and its external liabilities.
As of December 2024, India's NIIP stood at a negative $350 billion, meaning the country owes significantly more to the world than it owns in foreign assets. In contrast, several other Asian economies enjoy positive NIIP balances, often as a result of years of trade surpluses and global investments.Mitul Kotecha, head of FX and EM macro strategy for Asia at Barclays, told Reuters that a lack of positive NIIP "leaves the rupee trailing its regional peers".Countries like Taiwan, South Korea, China, and Hong Kong hold net international surpluses, enabling their currencies to rise when the dollar weakens. That's because investors tend to repatriate capital or hedge against falling dollar-denominated assets—moves that boost local currencies.advertisementIndia and Indonesia, however, are among the region's least liquid in terms of net international assets, Barclays noted.Brad Bechtel, head of global FX at Jefferies, told the news agency that this doesn't spell doom for the rupee, but it does explain why it may lag. 'It's not like a very negative story. It's just more of a lagging story,' he said.As the US dollar continues to soften—driven partly by global hedging activity, as noted in the Federal Reserve's May meeting minutes—Asia's external surpluses are coming into sharper focus. That's putting the spotlight on structural disparities in foreign asset holdings, especially for India.'Overseas capital repatriation and increased FX hedging could keep lifting Asian currencies,' analysts at Fitch unit BMI wrote in a recent note, pointing to the sharp appreciation in the Taiwanese dollar as a case in point.Unless India can narrow its external liabilities or boost foreign asset accumulation, the rupee may continue to sit out the region's currency party.Must Watch