As the US Fed hikes interest rates once again, the question for the markets is when do we see peak inflation, peak rates and a peak in the US dollar
Economic Affairs Secretary Subhash Chandra Garg had said in June if needed the government could raise funds through foreign currency non-repatriable (FCNR) deposits, sovereign bonds or other routes to increase forex reserves.
In the latest round of MSCI rebalancing which will be effective May 29 India stands to benefit the most and could see inflows of USD 1.15 dollar.
India is looking to attract dollar flows through NRI deposits to support the rupee. It has now dropped the option of issuing sovereign bonds for now.
The stock market has rallied over 400 points, cheering the government decision to cut diesel price by sharp Rs 5/litre and Ben Bernanke‘s decision to pump in USD 40 billion via bond purchases to improve the US economy. However, both the events do not warrant any immediate change in the monetary policy stance by the Reserve Bank of India (RBI).
Speculation in the currency market is that the Reserve Bank of India (RBI) may issue government gold bonds to attract dollar inflows and stabilize the rupee which is in danger of slipping to a record low.
The Reserve Bank of India (RBI) eased restrictions on the usage of foreign currency deposits on Wednesday, just days after its move to relax the interest rate ceiling on such deposits.
Prabhat Awasthi, Head of Equity Research & MD at Nomura Financial Advisory & Sec (India) says the fund house has cut its Sensex target to 17,000 for the year, citing risks such as the widening current account and fiscal deficits, as well as the uncertainty over policy matters.
The rupee ended marginally stronger on Wednesday aided by dollar inflows into local shares, though importers' demand for the greenback prevented a sharper rise.
The rupee was little changed on Friday as the negative impact of weak local shares and a volatile euro was offset by robust corporate dollar inflows, but importer dollar demand capped gains.
The rupee weakened on Thursday, retreating from a new 5-1/2 month high touched earlier, weighed by the dollar's strength overseas and choppy local shares.
The rupee eased on Wednesday after touching near-one-month-highs in the previous session as volatile domestic shares provided little support and dollar demand from oil importers further weighed on the local unit.
The rupee should open little changed on Monday and move in a narrow band as dollar inflows from commercial borrowings by companies are expected to offset import demand.