RBI intervenes to slow the rupee’s slide?
RBI intervenes to slow the rupee’s slide?
Oil after the United Arab Emirates energy minister said the country is producing close to its maximum capacity, surpassing expectations that it could help increase supply in tight markets. Prices rose about 1% in early Asian trade.
The Indian rupee hit a record low against the U.S. currency on Tuesday after higher oil prices raised concerns about long-term inflation, although intermittent dollar selling by the central bank helped limit losses.
The partially convertible rupee was trading at 78.75 / 76 per dollar by 0745 GMT, compared to Monday’s closing price of 78.34. The unit hit a record low of 78.7750 early in the session.
India imports more than two-thirds of oil demand, and rising oil prices have widened the country’s trade and current account (CAD) deficits, pushing up import inflation and damaging rupees. According to a private bank trader, the rupee could rise to about 79-79.50 next week, depending on central bank behavior, as oil prices rise again.
Oil prices rose on the third day as major producers Saudi Arabia and the United Arab Emirates were unlikely to be able to significantly increase production, but political instability in Libya and Ecuador heightened supply concerns. rice field.
According to traders, the Reserve Bank of India has sold dollars through state-owned banks to stop the rupee’s runaway loss, but the system’s dollar demand is much stronger.
Global dollar funding stress has been demonstrated by widening LIBOR-OIS spreads, according to analysts, and in the domestic market, RBI’s massive intervention in the futures market has exacerbated the problem of dollar cash shortages. increase.
RBI sold futures dollars to prevent rupee liquidity from entering the system. As a result, the one-year futures dollar premium on land fell below 3%. Emkay Global economist Madavi Arora allows RBI to readjust its FX intervention strategy due to exchange rate turmoil, lower FX coverage, higher commodity prices, restrictions on FX rate pass-through to inflation, and higher INR ratings. It states that it has sex. She added that allowing the Indian Rupee to slowly weaken over time and allowing room for improvement in CAD is the right strategy.
Jigar Trivedi, a research analyst at Anand Rathi Shares and Stock Brokers, said he expects the rupee to fall to $ 80- $ 81 per dollar by the end of the year due to twin deficits and widening interest rate differentials.
