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Rupee to be under strain, RBI likely saviour: Experts
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SME Times News Bureau | 26 Sep, 2015
The free fall in rupee value is expected to continue in the short term,
as the US starts discussions on an interest rate hike and global
recessionary fears prompt risk aversion by investors, experts said on
Saturday.
However, a monetary easing by the Indian central bank - Reserve Bank of India (RBI) could arrest the rupee's downward trajectory in the turbulant times.
"With
US Federal Reserve (US Fed) again raking up interest rate hike
discussion, global equities may start off negatively in coming week and
the impact will be seen in the rupee as well," Hiren Sharma, senior vice
president, currency advisory at Anand Rathi Financial Services, told agency.
The US Fed did not raise interest rates from near zero
levels, that it has maintained for a decade or so, during the Federal
Open Market Committee (FOMC) held on September 17. Fears that it may
soon announce a hike has spooked global investors.
A hike in interest rates by the US Fed will send shock waves across the world's capital markets.
A
rate hike could potentially lead to massive amounts of pull-back of
foreign funds from emerging economies like India. The US dollar will
also strengthen against emerging market currencies, gold and other
assest classes.
High interest rates in the US are expected to
wean away foreign portfolio investors (FPIs) from India. It is also
expected to dent business margins as access to capital from the US will
become expensive.
"Markets are still in a consolidation zone,
post August sell-offs... I expect, risk aversion to resume soon...
Global recessionary fears are there... Talk of US Fed hike is not
helping much," said Anindya Banerjee, associate vice president for
currency derivatives with Kotak Securities.
Notwithstanding the
fears of further downward trajectory, the rupee can rely on the fact
that the India Inc and global investors are betting at a cut in key
lending rates by Reserve Bank of India (RBI).
The RBI will decide
on whether or not to ease the key lending rates during its upcoming
monetary policy review slated for September 29.
But a mere token reduction of only 25 basis points "won't do much" for the rupee, market watchers said.
"RBI policy may not have much of an impact. Overall bias will be of depreciation," Banerjee said.
According
to India Inc and market observers, the rupee might require a "booster
dosage" of nearly a 50 basis points cut, which will spur the recovery in
both equity and currency markets.
"All eyes will be on the RBI
policy. Markets have already discounted a 25 bps rate-cut. Whereas a 50
bps cut can be a surprise move which will have a positive impact on
domestic equities leading to a recovery in the rupee," Sharma added.
The rupee continued on its downward trajectory. It fell for the fourth consecutive day against the US dollar on Thursday.
The rupee ended Thursday's trade down 17 paise at 66.16 to the dollar, aginst its previous close of 65.99.
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Customs Exchange Rates |
Currency |
Import |
Export |
US Dollar
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66.20
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64.50 |
UK Pound
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87.50
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84.65 |
Euro
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78.25
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75.65 |
Japanese
Yen |
58.85 |
56.85 |
As on 13 Aug, 2022 |
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