Brace for further GDP downgrade, poor stock mkt performance

The rupee almost touched an all-time low in the morning trade on Wednesday. The dovish stance by the Reserve Bank (RBI) in its meet on July 30, only added to the woes of the weakening currency.

Also read: RBI Credit Policy: Leaves key rates unchanged, reflects no hawkish stance CNBC-TV18’s Latha Venkatesh reports that the market had already positioned itself short on the rupee as investors expected the RBI to sound a little stronger to defend the rupee. The rupee now has found some relief as corporates and foreign institutional investors (FIIs) have been buying dollars. It is also believed that the RBI probably came in at 61.15-61.20/USD levels and sold dollars. Emerging markets (EMs) attracting huge inflows is not the flavour of the season. Even after Ben Bernanke’s so called ‘dovish’ statements on July 18, dollar inflows have been absent in EMs. The shift by investors to developed markets is reflecting on the currency. Flows will not be seen whether the tapering is in September or later. In addition to that, weak fundamentals where liquidity tightens, and as a result, banks raise rates, will hurt growth. These have been contributing factors for this trend. However, the policy was as good as one can get at this juncture. India may also see further GDP downgrades as agencies such as CLSA have already done so. It is a reflection that the stock markets growth is going to be poorer, which in turn will again affect the rupee market.