The Reserve Bank of India's interventions in the foreign exchange markets are to maintain macro economic stability and the adequacy of forex reserves is always kept in mind, Governor Shaktikanta Das said in a policy speech on Friday. The rupee is a free-floating currency, with a market-driven exchange rate, the governor said, adding that the RBI did not have a fixed exchange rate in mind and intervened only to curb excess volatility. "The aspect of adequacy of forex reserves is always kept in mind," Das added.
The Indian rupee is expected to open higher against the U.S. dollar on Friday, after the country reported a lower-than-expected current account deficit for the June quarter. The dollar index pulling back further from multi-year highs will likely be an additional boost for the rupee, traders said. India posted a CAD of $23.9 billion in the April-June period, wider than $13.4 billion in the preceding quarter but lower than $30.5 billion that economists were expecting.
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The Indian rupee could decline to 82.50 against the dollar by March, driven by the greenback's surge and the country's balance of payment deficit, IDFC First Bank said in a research note. The dollar's rally accelerated after the U.S. Federal Reserve last week raised rates by another 75 basis points and forecast more large-sized hikes to control inflation. "Looking ahead, we believe the dollar strength will endure," Gaura Sen Gupta, economist at IDFC First Bank, said.
Behind U.S. dollar strength is the Federal Reserve, which is steadfastly holding to its commitment to curb soaring price inflation.
The RBI may slow its intervention to protect the rupee during October-March, and allow the currency to move in alignment with global trends, Kotak Mahindra Bank said on Friday. The rupee dropped to a record low of 81.2250 to the dollar on Friday, prompting the RBI to sell dollars to prop up the currency, traders said. "We expect the INR to remain under pressure as markets continue to assess the extent of spill-overs from the (U.S.) Fed's hardening policy stance," Upasna Bhardwaj, senior economist at Kotak, said in a note.
The Indian rupee was little changed to the dollar on Monday as traders eyed the U.S. Federal Reserve's policy decision to break the current deadlock on the local unit. Giving the rupees a boost was the Reserve Bank of India's signal, in its monthly bulletin released late Friday, that it was in favour of front-loading rate hikes to control inflation and that it intervened aggressively in July to contain the rupee's decline. "The longer it stays in this range, higher could be the volatility of the subsequent move," said Srinivas Puni, managing director at QuantArt Market Solutions.
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The Indian rupee marked its worst week in five on Friday, as risk sentiment was hit by the Chinese yuan weakening past 7 per dollar to breach a key psychological level for the first time in two years. A foreign exchange trader said market participants were wary that the rupee had not been allowed to weaken past 80 per dollar and saw it as a level to protect.