By Rohit VaidNew Delhi, Nov 14 : Persistently high inflation along with risks of a fiscal slippage and higher government borrowings is expected to subdue the Indian rupee in the coming week.
Accordingly, the country’s retail inflation rose to 7.61 per cent in October from 7.27 per cent during September.
The retail inflation rise has mitigated any chances of a rate cut by the Reserve Bank in 2020.
Besides, expectations on a further stimulus has fanned fears to higher government borrowings.
However, expected foreign fund inflows into the stock markets are expected to arrest any major downslide.
As per some estimates, more than Rs 20,000 crore have flown into the country’s stock markets till now during November.
Consequently, the rupee is projected to range between 74.40 to 75.60 per greenback.
“Rupee stayed weak this week despite big inflows in equity markets.Almost all the inflows were absorbed by the Central bank taking reserves to new high,” said Sajal Gupta, Head, Forex and Rates, Edelweiss Securities.
“Some weakness was also attributed to a sharp rise in trade deficit of $8.7 billion from $2.5 billion in October.”
Official data on Friday revealed that country’s forex reserves increased by $7.779 billion to $568.494 billion for the week ending November 6, 2020.
The RBI is known to enter the markets via intermediaries to either sell or buy US dollars keeping the rupee in a stable orbit.
“We expect rupee to remain rangebound next week on back of two opposite forces pulling it on either side,” said Devarsh Vakil, Deputy Head of Research, HDFC Securities.
“US dollar will weaken with rising Covid-19 infections in the US and Europe.While persistent dollar purchases from state-run banks on behalf of the Central bank will not let Indian rupee to appreciate much.”
“Strong flows into domestic equity markets will also support the rupee.”
Forex and Bullion Analyst, Motilal Oswal Financial Services, Gaurang Somaiya said,”No major economic data is expected to release on the domestic front which could keep the volatility of the rupee in check.”
“On the global front more reform-related updates from newly-elect US President Joe Biden is likely to trigger volatility for the greenback.From the US industrial production will be the only important number to watch for and better-than-expected economic data could extend gains for the dollar.”
Somaiya expects the USDINR (Spot) to trade higher and quote in the range between 74.20 and 75.20.
(Rohit Vaid can be contacted at rohit.v@ians
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