The Indian rupee’s stability amid the Covid-19 pandemic, which has roiled economies around the world, is both comforting and puzzling.

After depreciating sharply around when the pandemic was declared and the national lockdown announced in March, the rupee has appreciated against the United States (US) dollar since May 2020.

As of October-end, the rupee settled at 74/$, much higher than the level of 76.8/$ reached in March.

Rupee’s movement in times of crisis

The rupee’s current appreciation is at odds with its own behaviour during previous crises. In the past, it has usually depreciated sharply when the economy came under pressure: In the immediate aftermath of the Global Financial Crisis (GFC) of 2008, it depreciated and was below (~5%) pre-GFC levels even eight months after the crisis. During the Taper Tantrum of 2013, the depreciation was lagged, but much sharper, and similar to the GFC trend, the currency did not fully recover.

Comparing these three episodes, the rupee’s initial depreciation has been least during the pandemic, and its recovery thereafter relatively swift. In fact, the rupee has been least volatile in this crisis: during the pandemic, the standard deviation (a measure of volatility) was 2.0 points, lower than that during the GFC (2.9) and Taper Tantrum (~4.0).