Inflation woes to hit Indian rupee
new delhi — Persistently high inflation along with risks of a fiscal slippage and higher government borrowings is expected to subdue the Indian rupee this week.
Accordingly, the country’s retail inflation rose to 7.61 per cent in October from 7.27 per cent during September. The rise has mitigated any chances of a rate cut by the Reserve Bank of India (RBI) this year.
Besides, expectations of a further stimulus have fanned fears for higher government borrowings. However, expected foreign fund inflows into stock markets are expected to arrest any major downslide.
As per some estimates, more than 200 billion have flown into the country’s stock markets until now during November. Consequently, the rupee is projected to range between 74.40 to 75.60 per greenback.
“The rupee stayed weak [last] week despite big inflows in equity markets. Almost all the inflows were absorbed by the central bank, taking reserves to a new high,” said Sajal Gupta, head of forex and rates at Edelweiss Securities.
“Some weakness was also attributed to a sharp rise in the trade deficit of $8.7 billion from $2.5 billion in October.”
The RBI is known to enter the markets via intermediaries to either sell or
buy US dollars, keeping the rupee in a stable orbit.
“We expect the rupee to remain rangebound [this] week on the back of two opposite forces pulling it on either side,” said Devarsh Vakil, deputy head of research at HDFC Securities.
“The US dollar will weaken with rising Covid-19 infections in the US and Europe, while persistent dollar purchases from state-run banks on behalf of the central bank will not the let Indian rupee to appreciate much.”
“Strong flows into domestic equity markets will also support the rupee.”
Gaurang Somaiya, forex and bullion
analyst at Motilal Oswal Financial Services, said: “No major economic data is expected to release on the domestic front, which could keep the volatility of the rupee in check.”
“On the global front more reformrelated updates from US President-elect Joe Biden is likely to trigger volatility for the greenback. US industrial production will be the only important number to watch for and better-than- expected economic data could extend gains for the dollar.”
Somaiya expects the dollar-rupee spot to trade higher and quote in the range between 74.20 and 75.20. —