The RBI’s Monetary Policy Committee (MPC) meeting was expected to bring relief to the local currency, but the Indian rupee saw little recovery and closed at 89.98 against the US dollar on Friday. It has been a turbulent week for the currency, which has depreciated by nearly 0.6%.
Commenting on the currency movement, Jateen Trivedi, VP Research Analyst – Commodity and Currency at LKP Securities, said, “Rupee traded slightly weak by 0.08 paise at 89.92 as the dollar index stayed flat, but persistent FII selling kept pressure on the currency. While the RBI’s 25 bps rate cut may offer some stability to financial sectors, delays in the India–US trade deal and soaring bullion and metal prices continue to weigh on sentiment. Rupee is expected to move within a range of 89.75–90.25.”
The rupee opened steady at 89.84, but breached the 90-level mark soon after the RBI announced a quarter-point rate cut, briefly touching 90.05 against the greenback.
RBI’s liquidity boost
Following the rate cut announcement, Governor Sanjay Malhotra addressed the concerns around currency depreciation.
“We don’t target any price levels or any bands. We allow the markets to determine the prices. We believe that markets, especially in the long run, are very efficient. It’s a very deep market,” he said at the post-policy press conference.
Malhotra added that fluctuations are normal and reiterated that the RBI’s efforts are always to reduce any abnormal volatility in the forex markets.
The central bank announced that it will conduct open market operations of government purchases of government securities worth Rs 1 lakh crore and a three-year dollar-rupee buy-sell swap of $5 billion to inject further durable liquidity into the financial system. The governor responding to a question at a press conference added that the move is a ‘Liquidity measure’ and is not supposed to support the Indian currency.
Rupee among worst performing Asian currencies
The Indian rupee has been one of the worst-performing Asian currencies in recent months, having lost 5% against the US dollar. The weakness has been attributed to the stalled India–US trade deal and continuous outflows of foreign equities from domestic markets.