- The USD/INR falls to 85.36 while the Indian rupe is recovered after the fall of last week.
- India’s HSBC manufacturing PMI was reviewed at 57.6 in May, pointing out a slight deceleration.
- The short position in dollars of 73,000 million dollars of the RBI increases the risks, the decision on interest rates is expected for Friday.
Indian rupee (INR) shows a slight recovery, strengthening against the US dollar (USD) on Monday after registering a drop of almost 1% the previous week. The recovery of the INR is largely due to a weaker US dollar, since the decrease in the yields of the US Treasury bonds and a cautious tone in the market continue to weigh on the dollar.
At the time of writing, the USD/INR pair is negotiated about 85.36, oscillating around the 21 -day exponential mobile average (EMA) during the first North American session.
Meanwhile, the US dollar index (DXY), which follows the value of the dollar against a basket of six main currencies, is contributing downward on Monday in renewed commercial tensions linked to the protectionist rhetoric of US President Donald Trump. The sales pressure intensified after the Index of purchasing managers (PMI) of ISM manufacturing was weaker than expected, reinforcing the concerns about the deceleration of the economic impulse, with the dollar index quoting around 98.67, below its minimum of the previous week.
In the data front, India’s manufacturing activity cooled slightly in May, with the HSBC manufacturing PMI falling to 57.6 from 58.3 in April. The figure, published earlier on Monday, coincided with the prevention of analysts, but still points to a slight slowdown in the impulse of the factories.
The increase in global oil prices is adding another layer of complexity to the short -term perspectives of the rupee. Crude oil prices jumped more than 4% on Monday after reports of Ukrainian drones in Russian military air fields and Opec +’s announcement of a production increase of 411,000 barrels per day for July. As an important importer of crude, India is still very sensitive to price fluctuations in the oil market.
Adding to the pressure, new concerns have emerged around the considerable short position in US dollars of the Bank of the India Reserve (RBI). According to the latest data of the Central Bank, the RBI had pending commitments in US dollars for approximately 73,000 million dollars to April, based on its short short position in the future, an indicator that reflects the amount of US dollars that the Central Bank has agreed to sell in the future. Although the figure has decreased from a record of 88.8 billion dollars in February, it still underlines the magnitude of RBI’s efforts to stabilize Indian rupee amid winds against external.
Looking ahead, the investor approach is moving to the policy meeting of the Bank of the India Reserve on Friday, where it is widely expected that the Central Bank cuts interest rates. Operators also remain cautious before Non -agricultural payrolls (NFP) that will be published on Friday, which could influence the Fed policy perspective.
India Faqs Reserve Bank
The role of the Bank of the Reserve of India (RBI), in its own words, is “… maintain the stability of prices taking into account the objective of growth.” This implies maintaining the inflation rate at a stable 4% level using the interest rates tool mainly. The RBI also maintains the exchange rate at a level that will not cause excess volatility or problems for exporters and importers, since the economy of India depends largely on foreign trade, especially oil.
The RBI formally meets in six bimonthly meetings a year to discuss its monetary policy and, if necessary, adjust interest rates. When inflation is too high (above its 4%target), the RBI will normally increase interest rates to dissuade indebtedness and spending, which can support the rupee (INR). If inflation falls too below the objective, the RBI could cut the rates to promote more loans, which can be negative for the INR.
Due to the importance of trade for the economy, the Bank of the Reserve of India (RBI) actively intervenes in the currency markets to maintain the exchange rate within a limited range. It does so to ensure that Indian importers and exporters are not exposed to unnecessary exchange risks during periods of exchange volatility. The RBI buys and sells rupees in the market in cash at key levels and uses derivatives to cover its positions.
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.
