US Federal Reserve Chair Jerome Powell’s Interest Rate Cut Signal Fails to Boost Rupee
The Indian rupee weakened against the US dollar on Monday, settling at 83.89 after initially climbing to 83.80 during early trade. Despite a recent peak, the rupee’s overall trend remains downward, with the currency recently hitting lows of 83.96 earlier in the month.
Forex traders attributed the rupee’s morning gains to the recent weakness of the US dollar, which followed Federal Reserve Chair Jerome Powell’s indication that a US interest rate cut might be imminent. Powell’s comments have led to a boost in global stocks and currencies, albeit providing limited respite for the rupee.
At the interbank forex market, the rupee opened at 83.83 per dollar, achieving an intraday high of 83.80 before dipping to a low of 83.91. By the end of trading, it had settled slightly lower, underscoring the rupee’s vulnerability to global currency dynamics.
The US dollar index, which measures the greenback against a basket of six major global currencies, was recorded at 100.82. This level is just above the 13-month low of 100.60, reached last week amidst expectations of US interest rate cuts in the near future.
Despite these developments, the rupee remains Asia’s weakest currency, having depreciated by 0.5% since April. This decline is largely driven by a continuous outflow of foreign portfolio investments (FPIs). So far this month, FPIs have withdrawn ₹16,305 crore from the Indian equity markets, influenced by the unwinding of yen carry trades and ongoing geopolitical tensions. Additionally, a strong demand for the US dollar from importers, coupled with interventions by the Reserve Bank of India (RBI) to maintain the rupee between 83.90 and 83.95, has exerted further pressure on the currency.
Anuj Choudhary, a research analyst at Sharekhan by BNP Paribas, suggested that the rupee may trade with a slight positive bias, driven by global risk sentiment and dovish signals from the Federal Reserve. However, he cautioned that geopolitical uncertainties in West Asia and rising crude oil prices could limit any significant upward movement for the rupee.
Anil Kumar Bhansali, head of treasury and executive director at Finrex Treasury Advisors LLP, also weighed in, predicting that the rupee would remain in a range of 83.75 to 83.95. He noted that the RBI is likely to buy dollars when the rupee strengthens and sell them when the rupee weakens.
Former Chief Economic Adviser Krishnamurthy Subramanian, speaking in Calcutta last week, noted that historically, the rupee has depreciated by 3-3.5% annually since the 1980s. He expects this depreciation rate to slow to about 1% per year leading up to 2047. Subramanian, now an executive director at the World Bank, believes that the Indian economy will expand significantly, with its GDP projected to grow from over $3 trillion currently to $55 trillion by 2047. He remarked, “Instead of a 3.5% rate of depreciation which has been the historical norm, I expect the rate of depreciation to be less than 1% going forward.”
Meanwhile, India’s foreign exchange reserves saw a significant increase, rising by $4.5 billion to $674.6 billion for the week ending August 16. This follows a drop of $4.8 billion in the previous week.
Stock Market Surge
Indian stock markets rallied on Monday, with benchmark indices Sensex and Nifty gaining nearly 1% each. The positive sentiment was fueled by Powell’s interest rate cut signal, renewed foreign fund inflows, and strong performances in the metal, IT, and consumer durable sectors. The BSE Sensex climbed 611.90 points, or 0.75%, to close at 81,698.11, marking its fifth consecutive day of gains. The NSE Nifty rose 187.45 points, or 0.76%, to 25,010.60, extending its winning streak to eight sessions.
Setback for Anil Ambani Group Stocks
Shares of companies led by Anil Ambani plunged on Friday after the Securities and Exchange Board of India (SEBI) barred Ambani and 24 other entities, including former key officials of Reliance Home Finance Ltd (RHFL), from the securities market for five years due to allegations of fund diversion. Reliance Infrastructure shares fell by 10.07% to ₹211.70 on the BSE, while Reliance Home Finance Ltd dropped by 5% to ₹4.46. Reliance Power shares also fell 5% to ₹34.48 on the NSE.
These events highlight the ongoing volatility in the Indian financial markets, influenced by both global economic signals and domestic regulatory actions.
