Rupee set to remain volatile amid Covid blues this exercise: experts
Disregarding the economic woes brought on by the pandemic, the Indian rupee has enjoyed significant appreciation in the first two months of the current fiscal year, as the accommodative stance of the US Federal Reserve and other factors steered the positive trajectory. overall currency, according to experts.
In addition to the relatively easy monetary approach of the US Federal Reserve, less aggressive intervention by the Reserve Bank of India (RBI) in the foreign exchange market helped the rupee to emerge as the best performing Asian currency in May as well. they estimated.
Going forward, analysts say, the USD-INR spot will likely remain volatile amid a series of events such as major central bank monetary policy decisions next month, hopes of stabilizing the COVID curve, the deployment of vaccination programs and expectations of a possible stimulus plan by the Indian government to stimulate national economic activities.
The RBI’s dovish stance at its June 4 monetary policy decision meeting and a government budget package should support growth and support the currency, “said Devarsh Vakil, deputy director of retail research at HDFC Securities.
Noting that the bias for the rupee remains on the bullish side, he said, “we expect the rupee to move towards 72 odd levels in the near term.”
Forex traders have warned that the risk of coronavirus remains and that much will depend on the aggressive rollout of the vaccination program. In addition, the impact of the second wave of COVID on the first quarter of fiscal 21 will also weigh on investor sentiment.
“Investors will also be careful with vaccination programs and aggressive deployments will help the national economy. Otherwise, the economic recovery could be slow. In turn, this could weigh on the local currency which could depreciate again towards 74.00” , Sriram Iyer, senior research analyst at Reliance Securities, said.
In April, the Indian rupee experienced a slight depreciation due to the outflow of REITs from the stock markets. Additionally, the resurgence of a second wave of COVID has heightened fears that an economic recovery may be delayed.
However, in May, the rupee became Asia’s top performing currency. For the current year, the rupee has appreciated by about one percentage point (0.92 percent).
Recording gains for the third day in a row, the rupee rose 15 points to close at 72.45 against the US dollar on May 28 (Friday). This month only has one trading day left on May 31 (Monday).
According to Iyer, the currency could appreciate initially supported by FPI flows and the absence of RBI intervention.
“So initially we could see the levels of 72.00 rupees tested. This will definitely help importers, especially oil imports, which could help reduce the double deficit. At the same time, exporters could feel heat, so the RBI could come in to an appreciation for the cap, ”Iyer said.
Markets will also look for clues of RBI monetary policy next week and Federal Reserve policy in mid-June.
Rahul Gupta, head of currency research at Emkay Global Financial Services, believes that although COVID cases are leveling off, regional lockdowns have created a sense of concern that it could again hurt economic growth.
He also pointed out that due to the second wave of COVID in India and regional lockdowns, IPOs of nearly nine companies have been postponed until recent months.
“So to keep the ball rolling, the Modi government could come up with a stimulus package, which will be positive for the rupee. Technically, a wide trading range would be 71.50 to 73.50,” Gupta said.
India’s foreign exchange reserves hit a record high of $ 592.894 billion for the week ended May 21, boosted by gold and foreign exchange assets. The previous forex jackpot record was $ 590.185 billion for the week ending January 29, 2021.
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