The rupee opened 10 paise stronger at 79.80 per US dollar on Thursday against the previous close of 79.9025 as the greenback weakened despite the US Fed’s decision to raise interest rates by 75 basis points to tackle inflation.
According to market observers, the dollar has weakened as the second consecutive 75 bps interest rate hike by the US Fed has increased the possibility of the US tipping into recession.
“The US Fed may go slow on rate hikes from September onwards as there are risks the US economy may go into recession. Lower or no rate hikes in US could then support the rupee,” said a forex dealer with a private sector bank.
In intraday trades so far, the rupee touched a low and high of 79.85 and 79.7650, respectively.
SBI research report
State Bank of India’s economic research department, in a report on Wednesday, observed that the worst of the rupee fall may be close to being over.
The Reserve Bank of India (RBI) still has enough firepower to support the rupee as it might not have used more than $25-30 billion in defending it, according to the report.
The report noted that RBI’s forex currency assets (forex reserves excluding gold and Special Drawing Rights) have declined by $59 billion since Russia-Ukraine war broke out.
However, foreign institutional investor (FII) outflows during the same period amounts to $23 billion during the same period.
Thus, part of remaining $36 billion (62 per cent of the total decrease in FCA) decline can be attributed to fall in value of non-dollar reserves amidst steep and secular dollar appreciation, according to Soumya Kanti Ghosh, Group Chief Economic Adviser, SBI.