The Reserve Bank of India (RBI) has actively intervened to curb rupee's volatility as various global factors continue to keep the currency under pressure. The central bank could continue to do so if uncertainty on more interest rate hike from the US Federal Reserve goes on or if geopolitics tension between Russia and Ukraine escalates, leading brokerage firm Motilal Oswal Financial Services (MOFSL) told ANI.
The US Federal Reserve raised the key policy rate by 75 basis points to over a decade high at 3.75-4.0 per cent in its latest monetary policy meeting. Notably, this is the fourth consecutive hike of such magnitude.
During such monetary policy tightening in advanced economies, big investors tend to move towards those economies for stable and high returns on their investments. Fund outflow, however, is a negative for rupee.
With a view to preventing a steep depreciation in the rupee, the RBI typically intervenes in the market through liquidity management, including through the selling of dollars.
In this context, Gaurang Somaiya, forex and bullion analyst, MOFSL, said, "The central bank has accumulated these reserves to be utilised in these kinds of situations," and added that investors are on the edge at this point as there are a lot of moving parts which are impacting the market.
On MOSL's support and resistance for rupee by 2022, he said the USDINR pair is expected to trade with a positive bias and could hit fresh highs of 85 to 85.50 levels and on the downside, it could be restricted to the levels of 80.20.
"In this year, FX reserves have eroded by about $100 billion and, yes, there is some bit of impact also of the revaluation as Euro and Pound have corrected sharply," he said, adding that currently FX reserves stand at $525 billion -- this is lowest level since July 2020.
Rupee this year has been significantly under pressure and year-to-date (YTD) fall has been to the tune of over 10 per cent primarily led by the hawkish outlook of the US Federal Reserve and that led to strength in the dollar against its major crosses, Gaurang Somaiya said. "Central bank action will continue to keep the overall volatility elevated for major currencies going ahead."
India's foreign exchange reserves rose to 531,081 million in the week through October 28, against $524,520 million in the week through October 21, which show a jump of $6,561 million during this period, according to RBI.
Recently the Federal Reserve and the Bank of England have hinted to slower rate hike pace but will continue to be data-dependent, according to the forex and bullion analyst. "If any uncertainty on the geopolitical front again arises, we will see safe-haven buying emerging for the dollar and that could keep major crosses including the rupee weighed down, said Somaiya.
On the domestic front, Somaiya said RBI and the government were concerned over higher inflation and would look to initiate steps to curb surging price rise.
"Trade deficit continues to widen on the back of higher oil import bill and that would negative for the currency," Somaiya said.
( With inputs from ANI )
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