Mumbai: Mint Street’s decision on Wednesday to raise rates twice in as many months could burnish the allure of rupee-denominated investments. At first glance, the local unit seems to rank among the worst performers in Asia this year. But consider the rupee’s total returns, adjusted for interest rates, and the outcome changes.
Then, the rupee ranks among top five performing currencies. Foreign portfolio investors normally look at total returns while investing in any geography.
India’s benchmark bond now yields the most after Pakistan.
The central bank has also kept its policy stance at ‘neutral’, triggering speculation that it may also cut rates after a prolonged pause, depending on market conditions. If that happens, existing higher yielding assets will yield more profits. Bond yields and prices move in opposite directions.
Moreover, a stable currency attracts overseas investors, who need not seek cover against risks of exchange fluctuations.
