One consquence of India’s booming growth has been upward pressure on prices or inflation. India’s equivalent of the U.S. Fed has publicly stated that controlling inflation is more important than maintaining the current 9% rate of GDP growth. As a result, India’s equivalent of the Fed Funds rate is well over 7% and has not come down in concert with U.S. interest rates.
As you would expect would happen in this environment, the Indian rupee has strengthened against the U.S. dollar and will likely continue to do so until India’s Fed gets inflation under control or the U.S. Fed suddenly starts paying attention to inflation.
As you can see in the chart below, the Rupee has pulled back somewhat as a flight to quality occurred during the recent credit crisis.
US Dollar in Indian Rupees (12 month chart)
A recently launched Indian Rupee ETF (or in this case, ETN) gives investors a low cost way to quickly gain exposure to the movement in the dollar-rupee exchange rate. Van Eck Global is sponsoring the Market Vectors Indian Rupee/USD ETN (NYSEArca: INR) which is based on the S&P Indian Rupee Total Return Index.
Total return means that interest earned on funds deposited are reinvested rather than distributed. Learn more at the Market Vectors website. Also check with your financial advisor and tax advisor before investing in currency ETFs and ETNs.