The Indian rupee (INR) regained part of the recent losses on Wednesday, with help of gains in domestic equity markets. The local unit was closed at 88.71 per US dollar and it gained 9 paise throughout the day.
Previously, the rupee had stretched its downturn to hit a new all-time low against the US dollar on Tuesday, due to the combination of continued outflows in foreign capital and doubts in international trade. Analystsremarked that the recent depreciation did not lead to a steeper fall in rupee on Wednesday as a number of factors put a stop to the fall. These were a sharp fall in world prices of crude oil and a weaker US dollar, which provided a relief to the domestic currency.
Market observers also noted that investor sentiment was also lifted by a domestic equity rally. The rupee is usually given a positive push by positive momentum in the stock market because it encourages the inflow of capital and the overall confidence of the stock market.
In a connected move, the Reserve Bank of India (RBI), in its Statement on Developmental and Regulatory Policies highlighted the steps to improve the settlement of cross-border transactions in INR and local currencies. Central bank had said, it has been gradually liberalizing legislation in the Foreign Exchange Management Act (FEMA) so as to achieve easier international trade settlements in local currency. It is likely to decrease the reliance on the US dollar and make the rupee stronger in the medium term.
Economists also noted that the rupee has been resistant in the recent sessions although its stability is sensitive to the global indications like the volatility of the crude oil, US monetary policy, and foreign investment flows. As the RBI is making proactive measures to encourage the use of INR in cross border trade, analysts are optimistically cautious that the local currency would possibly stabilise over time against the major international currencies.
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