The rupee closed at 81.77 per US dollar on Tuesday, up from 81.62 on Monday. At the end of the previous week, the domestic currency had closed at 81.34 per US dollar. Last week, the rupee gained 1.7% against the US dollar.The Reserve Bank of India’s purchases of US dollars, as well as persistent outflows of foreign investment, dragged the rupee lower, currency traders and analysts said.
“RBI may be intervening because the way the exports are contracting, They may seek to provide market support. It was initially thought that the RBI would intervene closer to the 80/$1 mark, but it appears that the RBI intervened closer to 81/$1. Most importantly, FPIs (foreign portfolio investors) remain on the sell side, according to Anindya Banerjee, VP – Currency Derivatives & Interest Rate Derivatives at Kotak Securities.
“Even a small amount of buying (of dollars) from nationalised banks can push prices higher because speculators are hesitant to short the US dollar with such low forward premia,” he said. According to a dealer with a state-owned bank, the central bank is likely to have purchased US dollars around the 81.40-81.50/$1 mark.Foreign portfolio investors have been active so far in January. have been net sellers of Indian equities worth $2.1 billion, NSDL data showed.
According to the most recent government data, India’s merchandise trade deficit increased to $23.8 billion in December 2022 from $23.4 billion the previous month. According to analysts, the higher deficit was primarily due to a sequential decline in oil exports while imports remained stable.
“In Dec-22, India’s exports showed positive annualised (YoY) growth in three of 14 sectors, with headline growth reverting to a 12.2% YoY contraction from a 9.6% expansion in Nov-22. “Sequential moderation in exports was primarily due to petroleum products, even as machinery, chemicals, textiles, and agri & allied Products posted a mild expansion,” Quant Eco research economists wrote.
According to dealers, a recent rebound in Global crude oil prices also contributed to the rupee’s weakness this week, as oil importers rushed to lock in dollar purchases at relatively advantageous levels following the rupee’s gains last week. In the previous week, the local currency gained 1.7% against the US dollar.Brent crude oil prices increased by more than 8% in the previous week, owing to increased economic activity in China, the world’s second largest economy. Because India is a major oil importer, higher crude oil prices pose a risk to the country’s current account deficit.
