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The Indian rupee depreciated on Monday and appeared set to register a monthly decline due to a central bank that seems reluctant to allow the currency to strengthen significantly.
As of 11:02 IST, the rupee stood at 82.2625 against the dollar, a decrease from 82.2475 on Friday. Throughout July, the local currency has fallen by 0.3%.
During the current month, the rupee experienced a pair of instances when it reached the 81.70-81.75 range, after which it had to face intervention from the Reserve Bank of India (RBI).
According to traders, the central bank purchased dollars around that level through public sector banks to prevent the rupee from appreciating further.
Despite foreign equity inflows exceeding $5.5 billion and a weaker dollar index, the RBI’s determination offset these factors.
As the RBI appears steadfast in their stance, the rupee is anticipated to remain within the 81.70-82.50 range for the time being.
In July, the dollar index fell by 1% amid expectations that the US Federal Reserve’s rate cycle has concluded. Investors reacted to softer US inflation data by speculating that the rate hike this month would likely be the last for a while.
Capital Economics stated in a note last week, “We suspect that further signs of a significant easing in the monthly core CPI (consumer price index) numbers for July and August will ultimately persuade the Fed to hold fire for the remainder of this year particularly.”
The rise in oil prices was cited as another reason for the rupee’s decline this month. Brent crude futures have increased by about 12.5% during this month, indicating their best performance in over a year.
The USD/INR forward premiums remained relatively stable month-on-month, with the 1-year implied yield at 1.66%, given the possibility of sell/buy swaps by the RBI and a dovish outlook from the Fed.
