So far in the current year, the rupee has depreciated against the dollar due to external factors. Increase in crude oil prices, reduction in supply due to Iran war, rise in bond yields, rise in dollar index, all these factors were playing an important role in the depreciation of the rupee. After a long time, a domestic factor has come to the fore, which has played an important role behind the sharp depreciation of the rupee. It is an increase in RBI policy rate.
RBI has hiked the policy rate after almost 44 months. After this increase of 25 basis points, the repo rate has come down to 5.5 percent. Notably, the RBI Governor has not given any indication of reducing the policy rate anytime soon. In fact, with his calibrated tightening stance, he has hinted at another rate hike at the December policy meet. This means that the rupee may see further decline.
However, the RBI can also intervene in the currency market to keep the rupee under control. But from the current situation, it can be estimated that soon the rupee may reach the level of 97 against the dollar. Let us also tell you what kind of figures have come up in the currency market.
A big fall in the rupee
The rupee closed down 43 paise against the US dollar at 96.78 (provisional) after the Reserve Bank of India (RBI) hiked the key benchmark policy rate by 25 basis points to 5.5 percent on Wednesday. Market analysts say the RBI’s rate hike reflects the growing risk of cyclical inflation, while the move towards ‘calibrated tightening’ with faster growth and inflation projections highlights the MPC’s tightening stance. In the interbank foreign exchange market, the rupee opened at 96.37 and after trading in a range of 96.34-96.84, it last closed at 96.78 (tentative), 43 paise lower than its previous close. On Tuesday, the rupee closed at 96.35 against the US dollar.
The RBI’s tightening stance weighed on sentiment amid fresh inflation concerns, sending the rupee to its second weakest level and trailing most Asian currencies. Dilip Parmar, senior research analyst at HDFC Securities, said rising crude oil prices and risk aversion added to the pressure, leading to the dominance of dollar bulls (those who expect the dollar to rise). Currently, there is resistance at 96.97 for USD-INR and support has now come in at 96.30.
RBI Governor’s Statement on Rs
On a day when the local currency was near its all-time low of 96.96 against the dollar, Governor Sanjay Malhotra told reporters that while markets may be “irrational” in the short term, in the long term they show their true value. He said the rupee may be “undervalued” according to many estimates, but assured that the Reserve Bank of India will ensure the currency is “stable” and help it reach its “true value”. According to many estimates, including the real effective exchange rate, the rupee is not overvalued. Malhotra said on Wednesday that his value may have been underestimated.
How was crude and the stock market?
Meanwhile, the dollar index – which measures the dollar’s strength against a basket of six currencies – was trading up 0.45 percent at 102.28. Global oil benchmark Brent crude futures were trading up 1.34 percent at $101.93 a barrel. In the domestic equity market, the Sensex closed down 429.11 points at 72,638.70 while the Nifty closed down 173.05 points at 22,603.05. According to exchange data, foreign institutional investors (FIIs) on Tuesday inflowed Rs. 2,961.30 crore worth of shares were sold.
