Rupee Hits One-Month High Amidst Fed Rate Cut Speculations and RBI Intervention
The rupee soared to a one-month high on Thursday, closing at 87.82 per USD. This increase comes in the wake of a weakening dollar index, which is largely driven by heightened expectations of additional rate cuts by the Federal Reserve and ongoing trade tensions between the U.S. and China.
Factors Influencing the Rupee’s Rally
Amidst a favorable atmosphere in local equity markets and optimism regarding trade negotiations between India and the U.S., the rupee experienced significant gains. It peaked at 87.70 per dollar before settling 24 paise higher than the previous day’s close of 88.0750/$1. On Wednesday, the rupee had already posted its most significant gain in nearly four months, attributed to the Reserve Bank of India’s (RBI) unexpected intervention, where it reportedly sold significant amounts of dollars to stabilize the currency.
RBI’s actions aimed to defend the rupee from dipping below its all-time low of 88.80 per dollar, a move that many analysts suggest was necessary given the currency’s narrow trading band over the past three weeks.
RBI’s Approach to Currency Management
During the IMF’s ‘Governor Talks’ session, RBI Governor Sanjay Malhotra emphasized that the central bank does not aim to target a specific level for the rupee. Instead, he highlighted the significance of macroeconomic fundamentals, capital flows, and current account status in determining exchange rates.
RBI’s goal is to facilitate an orderly movement of the rupee while curbing any unusual volatility, he stated, aiming to ensure a stable environment for both investors and market participants.
Market Outlook
Looking ahead, market analysts have varied predictions for the rupee’s trajectory. Some, like Sajal Gupta from Nuvama, forecast the currency strengthening towards the 87.80 level for a short period, with a potential subsequent decline. Others, such as Michael Wan from MUFG, caution of a gradual rise toward 89.70, reflecting ongoing uncertainties in U.S. trade policy and its repercussions on global currencies.
In conclusion, the rupee’s recent ascent signals positive sentiment amid underlying global factors. With the RBI actively managing currency fluctuations and market speculation, the Indian rupee is set to navigate through these turbulent times with cautious optimism.