The worst of the rupee's decline might be over as market expects US Fed to dial down pace of hikes
rupeeopens at 78.95 against the US dollar on Tuesday morning as experts believe the worst is over.
- This represents an appreciation of 12 paisa from Monday’s closing at 79.02 against the dollar.
- The INR hit its lowest point — at 80 per dollar — only a few weeks ago on July 14.
AdvertisementThe Indian rupee strengthened to close above 79 against the US dollar on Tuesday, for the first time in almost a month. Analysts who were estimating that the rupee would depreciate to 84/$ are now hoping it remains in this range, as the Reserve Bank of India seems determined to defend the currency to prevent sharp swings.
As per Bank of Baroda’s latest report, the domestic currency is now expected to trade in the range of 79.15-79.75/$ this fortnight due to positive global cues.
Anindya Banerjee, VP of currency derivatives & interest rate derivatives at Kotak Securities, is a tad more optimistic but offered a broad range of 78.7-79.4 per dollar.
“USDINR spot closed 23 paise lower at 79.02, thanks to FPI flows turning positive and some carry trade interest. Improvement in forward premium has brought exporters into the market. At the same time, softness in USD overseas, improved growth outlook in India and uptick in forward premium has attracted carry traders into the market, who go long Rupee and short USD,” he added.
Rupee opened at 78.95 per US dollar on Tuesday morning, representing an appreciation of 12 paisa from Monday closing. The Indian rupee had closed at 79.02 per dollar on August 1, 2022.
This comes as a sign of relief as the Indian currency has depreciated to its lowest point — at 80 per dollar — only a few weeks ago on July 14, 2022.
According to experts, the slump in rupee and other Asian currencies was largely due to underlying strengths of the US greenback and outflow of foreign portfolio investments (FPI).
“There has been a strong exodus of FPI investors in recent months largely owing to global inflationary pressures, policy rate hikes by major central banks and heightened geopolitical tensions on account of world developments such as Russia-Ukraine War,” the Reserve Bank of India had said in its June bulletin.
However, a weaker dollar and the reversal in FPI outflow has now been supportive of the rupee’s recovery from all time lows it hit. The net flows from foreign institutional investment into Indian equities turned net positive to $130 million in July after 10 months of outflow. Meanwhile, FPIs invested $239 million in the Indian markets last month.
On Monday FIIs bought shares worth ₹2,321 crore and were also buyers in Friday’s trade to the tune of ₹1,046 crore, said Prashanth Tapse, Senior VP (Research) at Mehta Equities.
AdvertisementA report by SBI Research published emphasized that the worst of the rupee's decline might be over as the US Federal Reserve may dial down the pace of monetary tightening in the second half of 2022. Since the Russia-Ukraine war broke out, RBI’s forex currency assets have declined by $59 billion. The FII outflow stands at $23 billion in the same time frame, according to the report.
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