Favourable policy decisions from the Reserve Bank of India (RBI) and the European Central Bank (ECB) this week might help the rupee retrace higher levels against the greenback.
On Friday, the rupee closed at 55.34 per dollar with marginal depreciation as compared to the previous week. However, the Indian currency had fallen to a low of 56.2 against the dollar on Wednesday, as global investors shed risky assets on fresh triggers from the Euro zone. The rupee appreciated towards the end of the week, as ECB President Mario Draghi said the bank would take all steps needed to preserve the euro. ECB is scheduled to meet on August 2.
These comments helped the euro recover to $1.23 after falling to $1.21 levels earlier in the week. The dollar index measured against six major currencies had risen to 84 levels on global risk aversion last week.
Last week, there were above $150 million worth of flows from foreign institutional investors into Indian equity and debt markets. “Stimulus for the Euro zone may bring back the risk-on mode and redirect investment flows towards emerging markets,” said a forex dealer with a domestic brokerage.
Unexpected rate cuts from other central banks in the past month has rekindled the hopes of a surprise policy rate cut in domestic markets. “In the absence of a rate cut, we expect the rates market to be disappointed and to partly reverse its recent down-move,” said Samiran Chakraborty, regional head of research, South Asia, Standard Chartered Bank.
Market participants are expecting some relief from the RBI, as it announces the first-quarter review of the monetary policy on July 31. The central bank had kept policy rates unchanged in the mid-quarter policy review held in June citing upward risks to inflation. On April 17, the RBI had announced higher-than-expected rate cut of 50 basis points in the Annual Monetary and Credit Policy.
