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Rupee range-bound on higher inflows, swelling reserves
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SME Times News Bureau | 11 Jul, 2020
The Indian rupee has been caught in a flux of higher FDI inflows and
swelling foreign exchange reserves, thereby restricting its future
movement around the Rs 75 per US dollar mark.
Analysts opined
that the rupee is caught between higher foreign inflows and the Reserve
Bank of India's efforts to shore up reserves.
Even a lower import bill and stable exports do not seem enough for the rupee to break free from its current range.
"With
the RBI continually increasing its forex reserves and investment in
dollar via forward contracts, a floor seems to be place below Rs 75
levels on spot," Anindya Banerjee, DVP, Currency and Rates, Kotak
Securities, told IANS.
"The upside is also capped due to
improving sentiments in the equity and bond markets. All in all, we are
looking at a range of Rs 74.80 to Rs 75.80 over the next few weeks, with
volatility remaining at a low."
According to Sajal Gupta, Head,
Forex and Rates, Edelweiss Securities: "The rupee appreciated swiftly to
Rs 74.52 per dollar due to large FDI flows and rising equity markets
and then weakened to Rs 75.20 on the back of the RBI's efforts to mop
up dollars to shore up reserves which stand at a record high of $513
billion dollars."
"India is expected to see a Balance of Payment
surplus of $60 billion this year due to lower crude price and falling
imports. It is a big surprise that amid such strong FDI inflows, the
rupee is still not strengthening as the RBI is mopping up all dollars to
the reserves."
Besides, he pointed out that imports have slowed
down at a faster pace as domestic economy looks weaker compared with
global markets.
Presently, India's foreign exchange reserves increased by $6.416 billion during the week ended July 3.
The reserves grew to $513.254 billion from $506.838 billion reported for the week ended June 26.
Last
month, official data showed India posted a marginal current account
surplus in Q4FY20 on the back of a lower trade deficit, along with
higher remittances, and an increase in investment flows.
The current account is the net difference between inflows and outflows of foreign currencies.
On
the quarterly basis, the current account balance recorded a marginal
surplus of $0.6 billion (0.1 per cent of GDP) in Q4 of 2019-20 as
against a deficit of $4.6 billion (0.7 per cent of GDP) in Q4 of 2018-19
and $2.6 billion (0.4 per cent of GDP) in the preceding quarter of Q3
of FY20.
At present, India's exports are steadily moving towards normalcy.
"Going
ahead, we expect the caution surrounding the impact and duration of the
novel coronavirus may keep all riskier assets on an edge, including the
rupee. We see USD/INR trading between Rs 74.75-Rs 75.75," said Rahul
Gupta, Head of Research -- Currency, Emkay Global Financial Services.
"Only
heavy inflows may cap the upside in USD/INR spot. We recommend
exporters to wait for better hedging levels as we expect the spot to
appreciate; however, they can start hedging their receivables once
USD/INR spot falls below Rs 75."
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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
|
87.50
|
84.65 |
Euro
|
78.25
|
75.65 |
Japanese
Yen |
58.85 |
56.85 |
As on 13 Aug, 2022 |
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