The exchange rate opened the day a tad weaker at 74.37 registering a loss of 18 paise/USD over its previous day’s close. From the low of 72.27 in the currency pair on 23-3-21 to the high of 74.55 on 7-4-21, the currency pair registered a steep appreciation of 3.15% in a fortnightly time period which is also the highest one-fortnight appreciation after May 2020. We feel the movement in the currency pair is overdone and expect to see a recovery in the rupee to 73.80 level in the next one-week timeframe from now.
From the closing level of 73.1050 on 31-3-21 to the closing level of 74.55 on Wednesday, the rupee has weakened by 1.98% in less than a timeframe of 1 week. We had observed in the past on several occasions the weakness in the domestic currency is more rapid as compared with the gradual appreciation in the currency pair. RBI’s intervention approach to buying dollars aggressively to prevent the rupee’s appreciation was very much visible in the past while the dollar-selling intervention comes only after delayed response during which time the fall in the domestic currency is much quicker than one can anticipate.
It is interesting to note the fall in the , rise in local stocks and a fall in USD had no impact on the rupee. In the last 4 month period, most of the importers have not hedged their payables and kept the exposures open without keeping stop-loss orders at 73.50 and 74.00. After the rupee breached the support levels at 73.80 and 74.30 more rapidly, the oversold dollar positions hit the market to take the rupee much lower in a short span of time.
RBI has once again maintained a status-quo in their policy rate and stance. Investors cheered RBI’s policy outcome and tapped equity markets.
While the US dollar weakened against a basket of major currencies today, the fell to 1.6650% as investors rolled back aggressive expectation that the Fed will tighten its policy earlier than pledged.
RBI projected CPI inflation at 5.2% in Q1 and Q2, 4.4% in Q3 and 5.1% in Q4 of the current financial year and the average CPI inflation in FY 2021-22 is estimated at close to 5%. The MPC noted the supply-side pressures on inflation could persist, while the demand side pull remains moderate. The higher expectation on retail inflation rules out the chances of any rate cut in the current financial year. The higher GDP growth for FY 2021-22 is retained at 10.5% with higher growth of 26.2 pct expected in Q1 due to the base effect. The 10-year G-sec yield ended the day at 6.08% from the day’s high of 6.19%.
The IMF raised its global growth outlook to 6% this year pointing largely to the US recovery and unprecedented public spending.
The US 10-year yield is currently at 1.6650% as a reaction to the sharp drop in to 0.8740% after hitting the 14-month high of 0.9880% on Monday.