The Indian rupee on Monday exhibited a recovery trend that is pulling it almost to its all-time low, mainly due to the expectation of intervention by the Reserve Bank of India (RBI), as far as currency dealers are concerned. An Indian trade delegation that is reportedly coming to visit the United States this week also gave the market a lift as it offered more support.
After a choppy day, the rupee finally closed nearly flat at 88.68 to a dollar, compared with its closing at 88.69 to a dollar the previous day. Throughout the session, the currency varied between 88.58 and 88.80 per dollar, which is representative of the effects of the current developments in the Indian-US trade relations. The news of any bilateral talks on trade still makes the market players very sensitive, and this has been one of the major reasons for short-term volatility in the rupee.
The rupee has depreciated by 3.63 per cent in the current financial year and 3.47 per cent in the calendar year up to date. Analysts state that the weakness of the currency has been affected by foreign forces in the recent past and includes a rising U.S. dollar and safe-haven demand, and domestic forces that have been closely monitored and controlled by the RBI.
Although this has been subject to changes, the real effective exchange rate (REER) is still lower than its long-term average, and thus it has limited downward potential on the rupee. Observers have observed that timely interventions made by the central bank, along with the strengthening of the trade sentiment, may bring a sense of stability in the short term.
In future, traders and investors are watching keenly the trends in the U.S. fiscal policy, foreign portfolio investment (FPI) flows, and the future India-US trade talks so that they can give a clue on the next move of the currency.
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