The rupee fell 19 paise, closing in the range of 82.78 (provisional) concerning the U.S. dollar on Wednesday and was in line with a tepid global equity market prior to the publication of the U.S. Fed’s policy statement.
In Interbank Foreign Exchange Market, the local unit started trading at 82.64 and saw a peak at 82.62 and a bottom of 82.81.
The final figure was 82.78 for it being the American currency, which is a loss of 19 paise compared to its previous close of 82.59.
“Rupee consolidated in a narrow range ahead of the important events that are lined up today and tomorrow,” said Gaurang Somaiya, Forex & Bullion Analyst, Motilal Oswal Financial Services.
This was caused by soaring inflation and trade imbalances, which have weakened demand for the local currency. However, the Reserve Bank of India’s policy committee softened its monetary tightening, signalling that it was weighing inflationary concerns.
The main focus will be Wednesday’s Federal Open Market Committee (FOMC) policy statement scheduled for Wednesday. It is expected to cause some volatility for the greenback.
RBI’s response to rupee failure to meet inflation target
The Reserve Bank of India is due to hold a rate-setting committee meeting on Nov. 3. Some traders are concerned about an unscheduled rate hike in the wake of the government’s failure to meet its inflation target. This concern has led the rupee forward premiums to rise, and the 1-year USD/INR implied yield hit 2.40%. That’s a 20 bps rise for the week.
The central bank’s policy statement is due to be released at 2 p.m. EDT (1800 GMT). Investors are closely watching the Fed’s remarks and statement, especially Powell’s remarks. Many expect the central bank to maintain a hawkish stance, with the interest rate likely to rise 75 basis points. However, recent comments from the central bank have given investors a reason to think that the central bank could be hesitant to raise interest rates this time around.
As a result, the US dollar has regained strength against the other major currencies. Moreover, the UK’s inflation figures revealed that inflation rose to a 40-year high in September, raising the prospect that the central bank will increase interest rates. The British Pound Sterling, meanwhile, fell 0.6% against the US dollar after the data was released.
The panel of the RBI’s rate-setting committee will meet on Thursday to decide and create an answer to the government’s failure to reach the inflation goal.
The response will concentrate on the factors that contributed to an increase in inflation of six percent for nine straight months. It will also discuss the reasons for inflation returning to the range of 2-6% and the steps needed to address the issue, Governor Shaktikanta Das stated.
Rising oil prices and trade imbalances have hit the rupee’s value, causing it to fall towards eighty-two dollars. The dollar has strengthened against the rupee as the world’s largest economy is grappling with high inflation and weak growth. This has made the falling rupee a challenge for policymakers in India.
India is heavily dependent on imported crude oil. It imports around 80 percent of its energy needs. As a result, the rupee’s value is pressed by the higher cost of crude oil, which in turn means higher import costs for India. These costs are passed on to the consumer, thereby increasing the prices of imported goods.
There is a consolidation in the Pound, and Euro are also consolidating within an area in advance of an expected Bank of England (BoE) policy announcement. The BoE is also expected to increase rates while maintaining its hawkish attitude.
In the meantime, the dollar index that measures the strength of the greenback against six currencies was up 0.28 percent to 111.17.
However, the Reserve Bank of India’s policy committee softened its monetary tightening, signalling that it was weighing inflationary concerns.
The benchmark oil for global consumption Brent crude futures, fell 0.26 percent up to $94.40 for a barrel.
On the equity market in the U.S. on the front and The 30-share BSE Sensex dropped 215.26 per cent or 0.35 percent to settle at 60,906.09 The broader NSE Nifty advanced 62.55 points or 0.34 percent to 18,082.85.
Foreign Institutional Investors (FIIs) were net buyers on capital markets, buying stocks worth Rs2,609.94 million on the Tuesday of this week, as per exchange information.
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