The Indian rupee remained little changed against the US dollar on Thursday, August 4, 2023, as support from the Reserve Bank of India (RBI) helped to offset concerns about rising inflation.
The rupee was trading at 79.79 per US dollar, up 0.02% from its previous close.
The RBI has been intervening in the forex market in recent weeks to support the rupee, which has fallen sharply against the US dollar this year.
The rupee has lost over 6% against the US dollar in 2023, making it one of the worst-performing currencies in Asia.
The RBI’s intervention has helped to stabilize the rupee, but it is unclear how long the central bank can continue to support the currency.
The RBI’s foreign exchange reserves have fallen by over $70 billion since the start of the year, and the central bank is facing pressure to raise interest rates to curb inflation.
Inflation is a major concern for the Indian economy. Consumer price inflation rose to 7.01% in June 2023, the highest level in eight years.
The RBI has raised interest rates twice this year in an effort to curb inflation, but the rate hikes have had little impact so far.
Investors will be closely watching the release of inflation data for July 2023 on Friday. If inflation continues to rise, it could put further pressure on the rupee and lead to more intervention from the RBI.
Here are some of the factors that could affect the rupee in the coming days and weeks:
Global economic outlook:
The global economic outlook is uncertain, with risks of a recession rising. A slowdown in the global economy could hurt demand for Indian exports and put downward pressure on the rupee.
US dollar strength:
The US dollar has been strengthening against most major currencies in recent months. A stronger US dollar could weigh on the rupee.
FII flows:
Foreign institutional investors (FIIs) have been net sellers of Indian equities in recent months. If FIIs continue to sell Indian assets, it could put downward pressure on the rupee.
RBI intervention:
The RBI is likely to continue to intervene in the forex market to support the rupee. However, the RBI’s ability to support the currency is limited by its foreign exchange reserves.
The currency is likely to remain volatile in the coming days and weeks, as investors weigh a number of factors, including the global economic outlook, US dollar strength, FII flows, and RBI intervention.