NEW DELHI, Aug 24: The Indian rupee is expected to remain relatively stable this week as strong capital inflows and likely intervention by the Reserve Bank of India provide support amid heightened global uncertainty, according to market participants.
The domestic currency opened the week under pressure from elevated crude oil prices and geopolitical tensions but remained within a narrow range. Traders said state-run banks were seen selling US dollars, suggesting possible intervention by the central bank to prevent excessive volatility.
The rupee was trading around Rs 95.64 against the US dollar in early Monday deals. The RBI’s foreign exchange reserves, which are nearing a record level of around USD 703 billion, have strengthened its ability to manage sharp movements in the currency.
Oil prices remain a major concern
Higher crude prices remain a key risk for India’s external finances because the country depends heavily on imports to meet its energy requirements.
Brent crude was trading near USD 94 a barrel, raising concerns that a prolonged rise in energy costs could increase inflationary pressure and widen the country’s import bill.
Market participants are also watching month end derivative settlements and corporate dollar payments, which could increase demand for the US currency and put temporary pressure on the rupee.
Capital inflows offer support
Foreign capital inflows have provided an important cushion for the domestic currency. Stronger investor interest in Indian assets has improved the country’s balance-of-payments position and increased the RBI’s room to intervene when necessary.
Analysts expect the currency to remain sensitive to developments in global markets, particularly US monetary policy, crude prices and geopolitical tensions.
Government bond yields are also likely to remain range bound after a sharp rise last week. Traders expect the benchmark 10 year yield to move between 6.80 per cent and 6.89 per cent.
With global investors awaiting fresh US economic data and Federal Reserve guidance, currency markets are likely to remain cautious through the week.