India's rupee is the world's worst-performing major currency in 2013

[Puchtoon]

As of Wednesday morning, the Indian rupee is the worst-performing among the world’s major currencies this year, having fallen 20% against the U.S. dollar since the start of January.

Over the same period the South African rand fell more than 19% and the Russian ruble more than 8% against the U.S. dollar. The Brazilian real has fallen more than 13% in the year to date and the Indonesian rupiah has declined nearly 16% over the same time.

But the rupee’s slide is now the most pronounced, which is particularly worrisome for Finance Minister P. Chidambaram who had tried to play the decline down by suggesting India is not alone in its currency woes.

To be sure, other currencies have lost value against dollar in recent months as the U.S. Federal Reserve set out plans to scale back massive purchases of treasury bonds, making the U.S. once again more attractive to investors than emerging markets.

But the rupee seems to be faring particularly poorly even among the currencies of other economies in its class.

The exodus of foreign capital out of India since May in anticipation of higher interest rates in the U.S. has certainly caused significant hurt to the Indian rupee.

However, the currency’s weakness has further aggravated existing economic problems, creating a vicious cycle. Simply put, the outflow of money has exposed India’s gaping current account and fiscal deficits. Sagging growth and weak policy making have further eroded investor confidence in India. This combination of poor economic indicators has led more foreign investors to protect their investments and cut their losses by selling Indian assets. In turn, this has led the value of the Indian currency to spiral further downwards.


India's rupee is the world's worst-performing major currency in 2013