Global boost: Higher reserves, rising inflows to strengthen rupee

Rising foreign reserves along with healthy Foreign Direct Investment (FDI) inflows are expected to strengthen the Indian rupee in the immediate-to-short run.

Accordingly, analysts opined that the currency will move into a range between 74 and 75 as healthy forex reserves and consistent inflows strengthens it further.

"Falling US dollar index globally is a good trend for emerging markets' currencies and thus rupee should trade with a stronger bias," Sajal Gupta, Head, Forex and Rates, Edelweiss Securities, told IANS.

"Market is ignoring the tensions between the US and China and is anticipating fast progress on the development of vaccines. More FDI inflows are also helping the rupee sentiments."

Presently, India's foreign exchange reserves increased by $1.275 billion, during the week ended on July 17.

The reserves grew to $517.637 billion from $516.362 billion reported for the week ended on July 10.

India's forex reserves comprise foreign currency assets (FCAs), gold reserves, special drawing rights (SDRs) and the RBI's position with the International Monetary Fund (IMF).

According to Anindya Banerjee, DVP, Currency and Rates, Kotak Securities: "Dollar-Rupee is caught between Central bank intervention and speculative selling."

"This may keep the pair boxed within a range of 74.45 and 75 levels for the time being."

The RBI is known to enter the markets via intermediaries to either sell or buy US dollars to keep the rupee in a stable orbit.

This week, the rupee marginally appreciated to 74.83 against a greenback.

"The RBI's dollar buying at regular intervals has been reflected in the FX Reserves, which are at a record high of $516.36 billion as on July 10. Also, this week Asian currencies remained positive because the dollar continued to plunge on fears of a full-blown financial crisis, and rupee followed the suit," said Rahul Gupta, Head of Research, Currency, Emkay Global Financial Services.

"Going ahead, if the trade tiff escalates then fears of the US ending the Phase-One deal will arise and USDINR will finally break the psychological level of 75 and trade higher. But we don't expect a sharp rally as traders are focusing on the coronavirus vaccine developments and are pretty convinced over getting additional stimulus packages.".