The Indian rupee stabilized on Tuesday after the currency earlier crossed a record low of 80.05 to the dollar for a seventh straight session as the central bank intervened by selling dollars. The rupee benefited from an increase in Indian stock prices. Traders claimed that, as in prior weeks, the central bank occasionally sold dollars through state-run banks throughout the day.
The rupee has been declining recently, along with most Asian currencies, as risk aversion has increased due to expectations that the U.S. Federal Reserve will raise rates aggressively to combat high inflation, which will cause investors to flee riskier assets. Due to decreasing likelihood of a full percentage point Fed rate hike this month, the dollar lingered just over a one-week low.
The devaluation of the Indian rupee will firm up margins for IT companies in the near future. Having said that, the margin upside might be constrained due to increased labor and travel expenses. Additionally, the dollar contracts might be renegotiated and the margins might equalize over time.
Foreign investors had sold shares of India for a net sum of more than $30 billion so far in 2022, and traders predicted that trend would continue until it changed.
Following an increase in U.S. treasury yields, India’s benchmark 10-year bond yield increased and was trading at 7.46 percent compared to its previous closing of 7.44 percent.
Steps taken by RBI to check this fall:
- The RBI has been intervening in both the spot and futures markets to halt the decline of the rupee and has recently taken a number of steps to increase the influx of foreign capital.
- The RBI announced earlier this month that, among other things, it would permit foreign investors to purchase short-term corporate debt and open up more government assets through the fully accessible method.
- In an effort to reduce the demand for foreign currency, it has more recently also permitted paying importers and exporters in rupees.
- Although a rebound in Indian stock markets on Tuesday assisted in stabilizing the rupee, traders cautioned it might only be a brief reprieve.