- The USD/INR quotes about 85.65 while the Indian rupe we weakens against a stable US dollar.
- The INR pressured by the fall of the actions, the increase in oil prices and the outputs of FII.
- RBI is expected to cut rates for the third time; The SBI hints at a possible 50 PB cut.
The Indian rupee (INR) weakens against the US dollar (USD) on Tuesday, returning the profits of Monday while the dollar stabilizes before the key data of the US labor market. The US dollar is finding support after falling to a minimum of six weeks the previous day, with the operators waiting for the Jolts employment offers report.
The USD/INR pair remains above Monday, at the time of writing, quoting around 85.65. The ascending movement reflects the growing pressure on the rupee, driven by the increase in prices of crude oil, mediocre yield of actions and exits of foreign funds.
The Indian actions expanded the losses on Tuesday, with the BSE Sensex falling 636.24 points to close by 80,737.51, while the NIFTY 50 decreased 174.10 points to settle by 24,542.50. Foreign institutional investors (FIIS) were net sellers in the cash segment, withdrawing shares for a value of ₹ 2,589.47 crore on Monday, according to stock market data.
Looking ahead, the market approach will be transferred to the next meeting of the Monetary Policy Committee (MPC) of the Bank of the Reserve of India (RBI), scheduled for June 4-6. It is widely expected that the Central Bank deliver a third consecutive cut of 25 basic points (PB), which would carry the reference reference rate to 5.75%. The RBI had previously reduced the policy rate by 25 PB in February to 6.25% and again in April to 6.00%, while continuing to support economic growth amid inflation in deceleration and global uncertainty.
The recent macroeconomic data of India paint a positive panorama. The inflation of the Consumer Price Index (ICC) was reduced to 3.16% in April from 3.34% in March, comfortably below the 4% target of the Bank of the India Reserve, thus strengthening the case for greater monetary relief. At the same time, GDP grew a robust 7.4% year -on -year in the first quarter, supported by a strong impulse in domestic demand and industrial activity.
Commenting on the policy prospects, Rajani Sinha, chief economist of Careedge Ratings, said: “In this reduction inflation environment and growing global uncertainties, we hope that the MPC will maintain its focus on supporting recovery in the boost of growth. The cycle of feat cuts that began in February will probably continue, with an additional reduction of 25 pb in the rate June meeting, while a accommodating position is maintained. “
Meanwhile, in a more aggressive call, a recent investigation report by the State Bank of India (SBI) suggested that the RBI could opt for a 50 bp cut at the next meeting to stimulate the credit cycle and counteract external uncertainties. The report indicated that the credit growth of commercial banks was slowed to 9.8% until May 16, compared to the growth of 19.5% last year.
Indian economy FAQS
The Indian economy has averaged a growth rate of 6.13% between 2006 and 2023, which makes it one of the fastest growing in the world. The high growth of India has attracted a lot of foreign investment. This includes foreign direct investment (FDI) in physical projects and indirect foreign investment (IIF) of foreign funds in Indian financial markets. The higher the investment level, the greater the demand for rupees (INR). Fluctuations in the demand for dollars by Indian importers also affect INR.
India has to import a lot of its oil and gasoline so that the price of oil can have a direct impact on the rupee. Petroleum is mainly marketed in US dollars (USD) in international markets, so if the price of oil increases, aggregate demand for US dollars increases and Indian importers have to sell more rupees to meet that demand, which depreciates the rupee.
Inflation has a complex effect on rupee. Ultimately, it indicates an increase in the money supply that reduces the general value of the rupee. However, if it exceeds the 4% objective of the Bank of the India Reserve (RBI), the RBI will increase interest rates to reduce it by reducing credit. The highest interest rates, especially real rates (the difference between interest rates and inflation) strengthen rupee. They make India a more profitable place for international investors to deposit their money. A fall in inflation can support rupee. At the same time, lower interest rates can have a depreciative effect on rupee.
India has had a commercial deficit during most of its recent history, indicating that its imports exceed its exports. Since most of the international trade is done in US dollars, there are moments (due to seasonal demand or excess orders) in which the high volume of imports generates a significant demand for US dollars. During these periods, rupee can weaken since a lot is sold to meet the demand for dollars. When markets experience greater volatility, the demand for US dollars can also be shot, with an equally negative effect on rupee.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
