Hopes of an interest rate cut to strengthen rupee: Experts

Expectations were backed up by BoJ decision to go in for a negative interest rate to support the Japanese economy

Hopes for an interest rate cut, coupled with dovish central banks around the world and a rebound in equity markets are expected to strengthen the Indian rupee in the coming week, experts said on Saturday.

Currency market participants are hopeful of an interest rate cut during the upcoming monetary policy review by the Reserve Bank of India (RBI) which is slated for February 2.

Expectations were backed up by Bank of Japan's (BoJ) decision to go in for a negative interest rate to support the Japanese economy.

The BoJ cut key lending rates by 20 basis points to negative 0.1 per cent. The decision came after the US Fed maintained its status quo on key lending rates.

Recently, the European Central Bank (ECB) indicated more stimulus measures which will be announced in March.

Further, the Chinese Yuan has been holding on a steady trajectory with positive liquidity coming in from the PBOC (People's Bank of China).

"After the BoJ's fresh round of easing, the global risk assets have now an interesting interplay of risk-on push from weak-Yen related carry trade and risk-off pull from the threat tit-for-tat of devaluations from China," Anindya Banerjee, associate vice president for currency derivatives with Kotak Securities, told IANS.

"Therefore, as long as Chinese central bank drags its feet on allowing the Yuan to devalue, a weak Yen can boost rupee, due to some FII (Foreign Institutional Investor) flows into local asset markets."

According to Banerjee, rupee can see a range of 67.50-68.20 on spot and will remain strong against Euro, Pound and Yen.

Other market observers have predicted rupee to strengthen further in-line with a rebound in crude oil prices. Crude oil prices have slightly edged-up to above $30 per barrel from lows of $26-$27.

"Rupee is gaining from equity confidence. Friday's close of 67.79 was almost 0.6 percent appreciation from previous day. Crude comeback or resurgence will only add to it," Hiren Sharma, senior vice president, currency advisory at Anand Rathi Financial Services, told IANS.

"67.80 (extreme 68.20) to 67.45 (extreme 67.20) still holds unless crude super exceeds - reflecting rupee to appreciate - or a Yuan decline pressurises rupee and global markets."

Sharma noted, that a positive move in rupee's value can be seen due to completion of month-end US dollar buying by importers.

Besides, aggressive buying by OMC's (Oil Marketing Companies) was observed. This trend might slow down with a rebound in crude oil prices.

On a weekly basis, the rupee weakened by 16 paise at 67.78-79 (January 29) to a US dollar from its previous close of 67.63 to a greenback (January 22).

However, it touched a new 29-month low of 68.23 to a US dollar -- its weakest level since late August, 2013 during the intra-day trade on January 28.

The National Securities Depository Limited (NSDL) figures showed that the FPIs (Foreign Portfolio Investors) were net sellers during the week ended January 29, 2016. They divested Rs.1,203.64 crore or $177.55 million in the equity and debt markets from January 25-29.

Similarly, data with stock exchanges disclosed that the FPIs sold stocks worth Rs.848.2 crore in the week under review.