Reserve Bank of India Prepares for Brexit Risks

June 17, 2016

India is under the influence of Brexit as the EU Referendum nears. India’s foreign exchange reserves reaches a record high and the rupee swings at the fastest pace since February. The Brexit Briefing widget from Sentifi offers a live monitor of how currencies are impacted by the event. Today, it shows a correlation between the rupee and Brexit.

Sentifi – Brexit Widget

As the potential of the U.K. leaving the European Union intensifies, the volatility of the rupees increases. Measurement of the rupees in a month showed the volatility had climbed 82 basic points this week as investors looked to the interest rate decision of the Fed and the Bank of Japan. The Reserve Bank of India still needs to prepare a lot to prevent the swings in one of Asia’s worst-performing currency.IN - Brexit INR jun 17

IN - INR msg jun 17RBI Governor Raghuram Rajan took care of that as he used discounted foreign-currency swaps to generate about $34 billion of inflow and helped lifting the rupee from its record low. The governor also prepared a hoard to defend the rupee from global shocks, which had increased $3.3 billion last week, the highest increase since April. Rajan said that the RBI had plenty of dollars to tide over shortage and to face case of extreme volatility when he kept the interest rate unchanged at the beginning of June.

Other Asian countries recognized Rajan’s effort in protecting India’s currency since the rupee was Asia’s worst performer this year when it dropped 1.7% to 67.275 a dollar. Radhika Rao, an economist at DBS Bank Singapore said that the RBI had all the available policy tools to make sure that the impact will not be enduring. According to Anthony Chan, senior economist at Alliance Bernstein, the outflow from maturing deposits will be discounted quickly if the emerging markets go through a normal and positive state. However, if there is more volatility in the emerging markets, investors will have to worry about the rupee.

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