The Indian rupee strengthened today against the US dollar after Reserve Bank of India announced measures to boost foreign-exchange inflows. The rupee rose as much as 0.5% to 78.90 to a dollar and in latest trade was at 78.99 as compared to previous close of 79.30. The Indian currency has weakened nearly 6% this year, putting it on the threshold of 80 per dollar for the first time, as investors seek the safety of dollar amid fears of a potential global recession.
To boost the rupee, the RBI announced many measures on Wednesday including doubling borrowing limits for companies from overseas, temporarily removing any interest-rate ceiling for banks to attract deposits from non-residents, and liberalizing rules for foreigners to invest in local-currency bonds.
Meanwhile, the dollar index, which gauges the greenback’s strength against a basket of six currencies, was trading 0.21 per cent higher at 106.87.
The RBI also said that it has been closely and continuously monitoring the liquidity conditions in the forex market and has stepped in as needed in all its segments to alleviate dollar tightness with the objective of ensuring orderly market functioning. The rupee had hit a record low of 79.40 against the US dollar on Tuesday.
Foreign institutional investors were net sellers in the capital market on Wednesday as they offloaded shares worth ₹330.13 crore, as per stock exchange data. Today, domestic equity markets were strong
Analysts said that the RBI’s measures may slow the depreciation in the rupee but there is risks of further weakening of the Indian currency amid aggressive rate hike plans by the Fed.
“The dollar remains above 106.50 levels and is likely to pave its way towards the north in the short to medium term given by aggressive Fed interest rate rise and safe-haven appeal stemming from global recession fears. As stronger dollar is taking its toll on the emerging markets, the RBI measures might take time to attract sustainable inflows. With RBI’s move, the pace of depreciation can get slower but the risk remains on the upside for US dollar until the sentiments turn positive and the rupee sustains below 78.50 levels,” said CR Forex Advisors in a note.
The US Federal Reserve last month raised its key interest rate the biggest single increase in nearly three decades. Chair Jerome Powell suggested at that time had suggested aggressive hikes in the future. Notes released on Wednesday from the Fed’s June 14-15 meeting confirmed other officials agreed that such an increase would “likely be appropriate.”
India’s rupee will trade near its historic low in three months, battered by widening trade and current account deficits, according to a Reuters poll where nearly one in three analysts expected it to weaken to 80 per dollar by September.
