Dollar liquidity, inflation and central bank stance are the three major drivers which will decide the direction of the rupee movement
Indian high-frequency economic data, comfortable forex reserves and measures from RBI and the government will protect the rupee from sharp depreciations in the event of FPIs again turning net sellers, Dilip Parmar, Research Analyst, HDFC Securities, said. In an interview with Surbhi Jain of FinancialExpress.com, Dilip Parmar said that the overall bias for the dollar is bullish. He advised investors and traders to stay on the right side and use any short-term pullback to go long the dollar. He also added that the RBI approach is guiding real interest rates into positive territory — front-loading rate hikes, then waiting for inflationary pressures to ease — is likely to minimize damage to growth. Here are the edited excerpts.
Also Read : Adani to buy DB Power for over Rs 7,000 crore
1. If FPIs turn net sellers again, will Rupee freefall resume despite several measures announced by RBI to contain the fall?
It’s always demand-supply and interest rate differential, which will decide the movement of local currency. So far this month, foreign institutions have bought worth $5billions, which provided stability to the rupee as it depreciated 0.6% versus the American Dollar, while the Dollar Index, a basket of six currencies, gained 1.69%. Recent, Indian high-frequency economic data, comfortable forex reserves and measures from RBI and the government will protect the rupee from sharp depreciations in the event of FPIs again turning net sellers.
2. How has Indian Rupee performed vis-a-vis other global currencies, Asian peers?
RBI’s paper on “Exchange Rate Volatility in Emerging Market Economies” clearly showcases how the rupee has been able to handle the recent advance by the DXY Index vis-à-vis many other emerging currencies. The rupee remained the median performer among the Asian and Major currencies for the current month and year to date.
Asian Currencies (Month to Date):
Major Currencies (Month to Date):
Asian Currencies (Year to Date)
Major Currencies (Year to Date):
3. What is your near to medium-term view on Rupee?
Looking at the medium-term trend we believe the rupee could trade lower and fall below 80.10 open for 80.70 and even 81 levels, while strength above 78.50 will negate the said view. In the short term, the rupee has been in a consolidation phase within the range of 79.20 to 79.90. The overall bias for the dollar is bullish, one should stay on the right side and any short-term pullback will be an opportunity to go long the dollar.
4. What are the key drivers and triggers in the Rupee movement going ahead?
Dollar liquidity, inflation and central bank stance are the three major drivers which will decide the direction of the rupee movement. Looking at the dollar liquidity front, it is tight following quantitative tightening from US Federal Reserves. Domestic inflation might show some relief following a cool down as food prices are relatively stable after good monsoon progress and global crude oil and metal prices have been corrected in the last two months.
Also Read : New RBI proposal: Upto Rs 25 fee on NEFT transactions initiated through bank branches
Globally central banks sounded pretty hawkish about hiking interest rates rapidly to cool inflation. The RBI approach is guiding real interest rates into positive territory — front-loading rate hikes, then waiting for inflationary pressures to ease — is likely to minimize damage to growth.
