Home News rupee: RBI measures should help rupee outperform peers in emerging markets: Experts

rupee: RBI measures should help rupee outperform peers in emerging markets: Experts

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rupee: RBI measures should help rupee outperform peers in emerging markets: Experts


Experts said a raft of measures announced by the Reserve Bank of India (RBI) on Wednesday to boost foreign exchange inflows should help the rupee outperform its peers among emerging market economies. The RBI said it has been closely and continuously monitoring the liquidity conditions in the foreign exchange market and has stepped in in all areas as needed to ease the tightening of the dollar to ensure the orderly functioning of the market.

It announced five measures to increase foreign exchange inflows.

The Indian rupee has depreciated 4.1% against the US dollar in the current financial year ended July 5, which is modest relative to other emerging market economies and even major advanced economies (AEs), the RBI said.

In short, the RBI is trying to increase short-term dollar inflows with the latest measures, said Abhishek Goenka, CEO of IFA Global.

Economist Vivek Kumar of QuantEco Research said:

Pressure on the rupee has prompted the central bank to diversify its defense strategy by adopting macroprudential measures to encourage foreign inflows.

“We think this will further help the rupee outperform its peers among emerging market economies. However, it is unlikely to change the unfavourable global backdrop of a stronger dollar, heightened geopolitical uncertainty and still some gains in commodity prices…” he said .

The rupee surged 39 paise against the dollar on Wednesday, posting its biggest one-day gain in three months to close at 78.94, following a sharp correction in crude oil, FII repositioning in capital markets and strong gains in local stocks.

Commenting on the RBI’s announcement, Dilip Parmar, research analyst at HDFC Securities, said the actions will have a positive sentiment impact in the short term but marginally positive impact in the medium term.

“However, for sustainable dollar inflows, global and domestic growth and inflation stability are necessary,” Palma said.

With the dollar hitting a 20-year high, current policy moves will help reduce the impact of higher borrowing costs due to rising inflation, said Shravan Shetty, managing director at Primus Partners.

“These RBI measures will help counter dollar outflows across asset classes, while accessing capital at a cheaper cost, thereby mitigating the impact of rising domestic interest rates,” he said.

In a statement, the Reserve Bank of India said the global outlook was clouded by recession risks.

As a result, high risk aversion has swept financial markets, triggering a surge in volatility, a sell-off in risk assets and massive spillovers, including safe-haven and safe-haven demand for the U.S. dollar.

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