Indian Rupee falls to a record low against USD — Here are the next important levels to watch
Dealing rooms that CNBC-TV18 spoke to have attributed no specific reason to this depreciation. The outflows for the US Dollar continue to be higher than inflows. There remains a demand to buy the US Dollar from people who are selling out and the Reserve Bank of India is on many occasions the only supplier in the market, as some exporters believe that they can get a better deal.
Dealers also told CNBC-TV18 that the Reserve Bank has decided to let go in a gradual manner, and, you know, allow the market forces to take over. They’re probably also telling the market that maybe the cheaper rupee is the solution to, you know, this gradual, continual, persistent attack on the rupee.
“I think 90 is psychologically a very important level. We’ve been highlighting that it’s a matter of time before we break 90, although we probably wouldn’t have expected to happen so soon. But again, I think if there is a trade deal announcement, it would probably see a knee jerk rally in the rupee. Again, at the moment, there’s been a lot of anticipation, continued comments from both the US and Indian officials that a trade deal is close at hand, and yet we still haven’t got anything in hand. So at this moment in time, that could be a saving grace for the rupee at this if we do see an announcement,” Mitul Kotecha of Barclays told CNBC-TV18.
Speculations are also rife that the depreciation is due to worries that the RBI may not cut interest rates after such a GDP print, which is generally positive for the currency, but the street is hoping for a rate cut from the RBI. The rupee moves also led to the equity markets cooling off after hitting a new record high earlier in the day.
“If they cut rates, then it could add a little bit more pressure. But ultimately, we think now that the after the certainly after the strong GDP print, it seems unlikely that the RBI will cut rates at this week’s meeting, and probably save their ammunition as needed. Even though inflation remains very, very low. There’s no urgency here to ease policy. If anything, the RBI may want to inject liquidity and try and use alternative methods to try and keep liquidity ample in the system. But I think for a rate cut, yes, if they cut and it’s dovish, markets would probably perceive now is more negative for the currency,” Kotecha added.
