The Reserve Bank of India’s Monetary Policy Committee’s decision to keep the repo rate unchanged and maintain positive growth outlook weighed on the rupee on Friday. At the start of the last trading day of the week, the Indian rupee strengthened by 11 paise to 90.23 against the dollar. Investor confidence in the policy remained strong, which supported the rupee in early trading.
Why did the rupee appreciate?
However, according to foreign exchange traders, the rupee’s gains were limited due to continued outflows by foreign investors, rising crude oil prices and a slight strengthening of the US dollar. At the interbank foreign exchange market, the rupee opened at 90.28 and strengthened to 90.23 per dollar during trading, registering a rise of 11 paise over its previous close. Last day, on Thursday also, the rupee had increased by 13 paise and closed at 90.34.
Meanwhile, the dollar index, which gauges the dollar’s strength against six major currencies, rose 0.04 percent to 97.85. Domestic stock markets witnessed pressure in early trading, with Sensex falling 225.15 points to 83,088.78 and Nifty falling 89.25 points to 25,553.55. In the international market, Brent crude rose 0.33 percent to $67.77 per barrel. Foreign institutional investors (FIIs) were net sellers on Thursday, selling shares worth ₹2,150.51 crore, according to stock market data.
What are the experts saying?
Despite expectations regarding the trade agreement, the foreign exchange market is now showing more caution rather than enthusiasm. Foreign exchange traders say investors are currently focusing on facts and confirmation rather than celebration, as no official document has been released yet, nor have the final terms been formally made public by the two countries. Apart from this, the market is also focusing on the interest rate announcement of the Reserve Bank of India (RBI) on Friday, which may give an indication about the future direction.
According to Anuj Chaudhary, Research Analyst, Mirae Asset Sharekhan, the rupee may trade with a positive trend amid expectations of a US-India trade deal. However, he warned that weakness in the domestic equity market and a stronger US dollar could limit the rupee’s gains. Chaudhary also said that the rupee may remain under pressure at higher levels due to higher crude oil prices and rising tensions between the US and Iran. Therefore, investors are closely keeping a close eye on the signals from RBI’s monetary policy.