THE INDIAN NATIONAL RUPEE (INR) rose nearly 2 percent to 73.40 from 78.89 against US dollar.
Foreign Portfolio Investors (FPI) pumped more money into the domestic markets and the Reserve Bank of India (RBI) refrained from intervening in the foreign exchange market.
When the RBI buys dollars, it releases equivalent amount in the rupees into the system, which, in turn, could put pressure on inflation and yields.
The sharp fall in USD- Rupee spot has been unexpected and the traders are in shock. Initially RBI was protecting the 74.50 zone but its absence bhas led to free fall. The question arises whether can we expect RBI to intervene the exchange in future or it is comfortable with the current levelsRahul Gupta( head of research of EmkayGlobal Finance Services)
The US federal reserve recently signalled a major shift in its approach to managing inflation in a bid to aid the country’s economy’s recovery. It it will now target the “average” 2 Percent inflation, rather than making a fixed 2 percent target, giving it more flexibility. Fed chief Jerome Powell said. The new policy will allow the central bank to keep interest rates lower for longer, stimulates growth to help tackle unemployment. The Fed’s move will lead to more capital flows to emerging markets like India.
After this 2% for foreign exchange reserves search by 2.2 billion to 537.5 billion.
This huge reserve wil act as a cushion for India’s economy at the time to breakdown. Rising forex reserves give a lot of comfort to the government and the Reserve Bank of India in mmaagaing the internal and external financial issues at a time when the GDP is set to contract be 5.8 percent in 2200-2021. It is enough to cover the import bill of country for year.