New Delhi : While the Rupee closed broadly unchanged in April, it briefly touched a record low during the month. Outflows of funds by foreign portfolio investors (FPIs) and the strength of the US dollar have kept the domestic currency under pressure.
Even in May, it continued to trade in a tight range of 83.43-83.52 per US dollar amidst a lack of FPI inflows and dollar demand from oil companies, according to a report by the Bank of Baroda.
The Indian Rupee closed nearly flat on Friday at 83.50 against the US dollar, tracking subdued moves in its Asian peers.
“We expect INR to remain range-bound in the near-term supported by RBI’s two-way intervention. Over the longer term we continue to believe that the USD/INR is likely to appreciate,” the report noted.
The steadiness in the Rupee could be attributed to likely intervention by the RBI. RBI intervenes in the foreign exchange market, from time to time, to defend the uneven depreciation in the rupee against a surging US dollar. It intervenes in the market through liquidity management, including through the sale of dollars, to prevent a steep depreciation in the rupee.
The RBI closely monitors the foreign exchange markets and intervenes only to maintain orderly market conditions by containing excessive volatility in the exchange rate, without reference to any pre-determined target level or band.
According to the latest Monthly Economic Review report of the Department of Economic Affairs under the Ministry of Finance, the Indian currency Rupee was the least volatile major currencies among its emerging market peers and a few advanced economies in the just-concluded financial year 2023-24.
The Rupee-USD exchange rate hovered in the range of Rs 82-83.5 per US dollar.
According to the report, the Rupee also exhibited the lowest volatility in 2023-24 compared to the previous three years. Going forward, robust foreign inflows and comfortable trade deficits are expected to keep the rupee within a “comfortable range”.
In 2022-23, the Indian Rupee was in the news cycle for a considerable part, though not for good reasons. Monetary policy tightening by various central banks to contain inflation, the war in Ukraine leading to price rise for crude oil and subsequent realignment in the global energy supply chain, and strengthening of the US dollar index kept the Indian currency under pressure.
In 2022, the Rupee depreciated over 11 per cent on a cumulative basis, data showed. It breached the 83-mark against the US dollar in mid-October, to hit an all-time low.