Against the earlier expectation of two rate hikes this year, the Federal Reserve kept rates unchanged and also hinted at maintaining the status quo, going ahead in 2019, in its latest outing. The decision to hold rates by the US Central Bank may help rupee to appreciate against the US dollar, a report said.
However, the crude oil prices may also decide the movement of the local currency moving ahead, CARE Ratings report said. “…..lot depends on how the other factors turn out such as current account deficit and capital flows. Movement in oil prices would hold the clue here. Therefore, a rupee appreciation cannot be taken for granted even as the normal pace of depreciation expected of 3.5-4% this year would get reduced,” the report added.
In addition, $5 billion dollar swap by the Reserve Bank of India (RBI) from banks to infuse liquidity, in a limited manner, also restrain rupee surge, it noted.
“The impact of US FED’s decisions on the movement of the Indian Rupee will be positive at the margin. However the expectations for a FED pause had already been built in. Now the move will depend more on the election results and a return of the current government with a clear majority will create more upsides. However a mixed verdict could create short term weakness,” veteran investor Sandip Sabharwal said.
Furthermore, FPI and FDI flows are expected to gain volumes with Federal Reserve’s latest move, the report also said.
“Monetary policy action in India is unlikely to be influenced overtly as the target is inflation and while the external sector and the state of the rupee are factors looked at when drafting the statement the decision is driven by inflation and hence should not have an impact,” the report stated.