NEW DELHI: The rupee is currently down 9.6 percent Year-to-Date (YTD) even though the Dollar Index (DXY) has increased by about 20 percent, which is likely the fastest increase on record, leaving the Reserve Bank of India (RBI)
little choice but to allow the rupee to decline gradually, a report from Emkay Global Financial Services read.
The RBI spent around USD 80 billion, or nearly 15 percent of reserves, to stop the rupee from falling, and that was the right course of action at the time.
The excess liquidity (as reported at the LAF window) normalised from a Rs 8 trillion surplus to a Rs 1 trillion deficit at this time while the RBI was selling down dollars. This coordinated with its approach toward policy normalisation.
The central government's balances with the RBI, according to Emkay, are approximately Rs 3.6 trillion, which will gradually reduce the deficit.
India has extremely strong economic resilience and high frequency indicators. Later in the year, exports will start to slow growth a little bit. Although it is doubtful that Indian markets will outperform globally, they should. The analysis stated that a cut and time fall of 5-7 percent from the most recent Nifty highs of 18,100 is more plausible.
Banks should do worse in the near term as the currency and bond yields adjust. The statement said, "However, credit growth estimates will be revised upward, thus it is uncertain if the correction will be deep enough to trade.
The RBI will now have fewer options for policy because any sizable dollar sales will restrict liquidity (and interest rates) and begin to stifle GDP. Of course, RBI can increase liquidity by performing OMO (purchasing bonds), but this may confuse the market because policy rates are still being tightened. The current trend is for the rupee to weaken, and the RBI will favour flexibility over interest rates as opposed to exchange rates.