*Rupee gains but market unsure of inflows amid global rush to US dollar | Business Standard News

Clipped from: https://www.business-standard.com/article/markets/rupee-gains-but-market-unsure-of-inflows-amid-global-rush-to-us-dollar-122070700960_1.html

The rupee settled at 79.18 per US dollar as against 79.30 per US dollar on Wednesday

Photo: Brent Lewin/Bloomberg

Photo: Brent Lewin/Bloomberg

The rupee gained against the US dollar on Thursday after the Reserve Bank of India announced a slew of measures to attract more foreign exchange into the country.

The rupee settled at 79.18 per US dollar as against 79.30 per US dollar on Wednesday. In the course of the day, the local currency moved in a band of 78.90-79.26 per US dollar.

On Wednesday, the RBI rolled out a series of steps to further liberalise foreign exchange flows.

These included certain regulatory relaxations and the permission to offer higher interest rates on foreign currency deposits as well as higher quantum of foreign investment in specified government bonds. Companies have also been permitted to raise a larger quantum of foreign funds through External Commercial Borrowings.

The central bank’s steps come at a time when India’s current account deficit (CAD) is expanding amid higher crude oil prices and record outflows of overseas investment from equities. In June, the country recorded its highest ever monthly trade deficit of $25.63 billion. The rupee, which earlier this week, touched fresh lows versus the US dollar, has weakened 6.1 per cent against the greenback so far in 2022.

While the depreciation is of a much lower order than that experienced during the ‘taper tantrum’ of 2013, dealers said the RBI had likely announced the measures as overseas investors were showing no signs of letting up on their equity sales.

Chart

The US Federal Reserve’s aggressive plans to raise interest rates have exacerbated the outflows from Indian equities as investors have flocked towards the world’s largest economy.

So far in the calendar year, FPIs have net sold $28.8 billion of domestic stocks, as against $11.9 billion during the Global Financial Crisis of 2008.

Currency dealers were sceptical about the extent to which the steps would draw overseas capital flows, given an ongoing global flight to the safety of the US dollar amid growth concerns and the Ukraine War.

The US dollar index is hovering around a 20-year high of 107. The index, which gauges the greenback against six rival currencies, rose to a high of 107.14 on Thursday versus its previous close of 107.10.

“The Indian rupee’s reaction to the RBI’s slew of measures was muted as the market is still in dilemma whether the inflows outpace the current capital outflows when the global economy is slowing,” HDFC Securities Research Analyst Dilip Parmar said.

Based on technical levels, the analyst sees a downside of 79.40-79.80 per US dollar for the rupee, while the upside is seen at 78.50-78.85. Even as the rupee gained, government bonds took a beating on Thursday as US yields hardened, dealers said.

Yield on the 10-year benchmark 6.54 per cent 2032 paper climbed six basis points to settle at 7.35 per cent. Bond prices and yields move inversely.

Yield on the 10-year US Treasury note rose as much as five basis points to 2.98 per cent on Thursday as the minutes of the Federal Reserve’s last meeting suggested that the central bank would press forward with rate hikes to curb inflation even if growth were at risk.

Dealers said domestic bonds had also weakened as some traders had sold securities ahead of fresh supply worth Rs 33,000 crore through a primary auction on Friday.

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