Hindu Business Line- Bangalore, Dec 25 This year was an eventful one for the rupee. The Indian currency advanced against the dollar despite galloping global oil prices.<\/p>\n
Against the dollar, the rupee advanced 12.5 per cent during the year. Against the euro, another currency preferred for invoicing, the rupee has remained steady from April this year. But the euro is also losing flavour among domestic exporters in view of a possible depreciation. <\/p>\n
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But a large portion of the rupee\u00c3\u00a2\u00e2\u201a\u00ac\u00e2\u201e\u00a2s advance stemmed from the huge capital flows during the year from foreign institutional investors, hedge funds, and non-resident investors moving out of the dollar. Besides, investments were also pouring in from countries like Japan that have traditionally stayed away from emerging markets. In fact, Japanese investors used the yen carry trade mechanism for investing in Indian markets. The yen carry trade implied borrowing in yen denominated interest rates and reinvesting the same in the high yielding emerging market securities. The obvious preference for such investors has been India, in view of the high returns and the lowest risks as against all the emerging markets in the world, including China.<\/p>\n
Money supply, driven by foreign inflows, expanded 35 per cent on year-on-year basis, triggering inflation worries. Exporters panicked, fearing negative margins. In fact, during the year, exporters returned to hedge their exposures. Till April, exporters hedged against only dollar exposures. But mid-year onwards, most of them were hedging against the dollar, sterling pound and the euro as well.<\/p>\n