Indian Rupee to Witness Monthly Decrease; July’s Premiums Remain Steady


The Indian Rupee displayed a downtrend on Monday, indicating a probable monthly depreciation. This is attributed to the Reserve Bank of India’s (RBI) strategy of maintaining a limit on the currency’s growth.

Date: July 31, 2023

Place: New Delhi, India

The rupee’s exchange rate stood at 82.2625 against the dollar at 11:02 IST on Monday, exhibiting a slight decrease from Friday’s 82.2475. Throughout July, the local currency has seen a 0.3% decrease.

Earlier this month, the rupee twice reached a level between 81.70-81.75, prompting the RBI’s intervention. In an attempt to restrict the rupee’s further appreciation, the central bank reportedly purchased dollars through public sector banks when the currency hit this range, according to traders.

The RBI’s proactive approach has countered the effects of foreign equity inflows surpassing $5.5 billion and a weakening dollar index.

Given the RBI’s unwavering stance, the rupee is expected to hover within the 81.70-82.50 range for the foreseeable future.

The dollar index witnessed a 1% decline in July, largely due to predictions that the U.S. Federal Reserve’s rate cycle has come to an end. Muted U.S. inflation data has led investors to speculate that the Fed’s rate increase this month might be its final one.

Economic research firm Capital Economics remarked last week, We anticipate that upcoming evidence of a considerable reduction in the core Consumer Price Index (CPI) figures for July and August will eventually convince the Fed to refrain from further rate hikes for the rest of this year.

The rupee’s depreciation in July was also influenced by an increase in oil prices. Brent crude futures, having risen around 12.5% this month, are on track for their best performance in over a year.

Meanwhile, the USD/INR forward premiums remained relatively stable every month, with the 1-year implied yield standing at 1.66%. This stability comes in light of potential sell/buy swaps by the RBI and the Federal Reserve’s predicted dovish stance.


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