Strong Capital Inflows Support Rupee, Says RBI

According to RBI Bulletin, the Indian rupee has begun to gain in July on the back of strong capital inflows, barring intermittent corrections, in spite of increase in the trade deficit and firming international crude prices weighing on the downside. Despite volatility triggered by spillovers over market expectations relating to the future course of monetary policy and a fluctuating US dollar (DXY), the rupee is trading in a tight range. Currency hedging costs have accordingly become lower than earlier. The euro is being reportedly preferred as the currency to fund long rupee carry trade. Meanwhile, in June, INR depreciated by 0.1 per cent (m-o-m) vis-vis the US dollar as emerging market currencies faced depreciating pressures on the back of the strengthening US dollar and rising commodity prices. The INR, however, remained one of the least volatile major currencies during the month, the central bank noted.

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