PremiumThe Reserve Bank of India (RBI) may continue to actively intervene to curb rupee's volatility, if uncertainty on more interest rate hike from the US Federal Reserve goes on or if geopolitics tension between Russia and Ukraine escalates, leading brokerage firm Motilal Oswal Financial Services (MOFSL) said on 7 November.
On 2 November the US Fed hiked the policy rate by 75 basis points to 3.75-4 per cent while hinting at a lowering of the quantum of rate hikes by the next or the following meeting. This is the fourth consecutive hike of such magnitude.
The RBI typically intervenes in the market through liquidity management, including through the selling of dollars with a view to preventing a steep depreciation in the rupee.
"The central bank has accumulated these reserves to be utilised in these kinds of situations," MOFSL's forex and bullion analyst Gaurang Somaiya said, adding the investors are on the edge at this point as there are a lot of moving parts which are impacting the market.
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Sharing his views ion MOSL's support and resistance for rupee by 2022, he said the USDINR pair is expected to trade with a positive bias and could hit fresh highs of 85 to 85.50 levels and on the downside, it could be restricted to the levels of 80.20.
"In this year, FX reserves have eroded by about $100 billion and, yes, there is some bit of impact also of the revaluation as Euro and Pound have corrected sharply," he said. The FX reserves stand at $525 billion -- this is lowest level since July 2020.
In 2022, Rupee has been significantly under pressure and year-to-date (YTD) fall has been to the tune of over 10 per cent primarily led by the hawkish outlook of the US Federal Reserve and that led to strength in the dollar against its major crosses, Gaurang Somaiya said.
According to RBI, India's foreign exchange reserves rose to 531,081 million in the week through October 28, against $524,520 million in the week through October 21, which show a jump of $6,561 million during this period.
Also, as per Gaurang Somaiya , both the Federal Reserve and the Bank of England have hinted to slower rate hike pace but will continue to be data-dependent.
"If any uncertainty on the geopolitical front again arises, we will see safe-haven buying emerging for the dollar and that could keep major crosses including the rupee weighed down, said Somaiya.
With ANI inputs.