Indian Rupee Gets Support from Fed Rate Cuts and FPI Inflows: Union Bank of India Report
New Delhi [India], September 26: A research report by the Union Bank of India highlights that the Indian rupee will get support against the dollar and will trade around Rs 83.57. The report notes that the rupee is expected to trade in the range of Rs 83.27 and Rs 83.99, with Rs 83.99 being its all-time low.
The report emphasizes that the rupee will trade in this range with positive momentum supported by foreign portfolio investors (FPI) inflows and general weakness in the US dollar. It states, “Based on the current global scenario, we shift our technical stance that INR should take support of 83.27 and will find resistance around 83.77 followed by the crucial level of 83.99 (All-time highs).”
If the rupee breaches this resistance of 83.99, it could test levels as high as Rs 84.16, based on Non-Deliverable Forward (NDF) market trends. The report also highlights that the interest rate differential between the US and India is expected to widen as the Federal Reserve has implemented a significant rate cut of 50 basis points in its September FOMC meeting.
While the Reserve Bank of India (RBI) is likely to maintain its “Withdrawal of Accommodation” policy due to rising food inflation, this interest rate differential is expected to attract more FPI inflows into India, providing additional support to the rupee. This trend is already visible in the RBI’s data on External Commercial Borrowings (ECB) inflows.
In July 2024, Indian firms, including non-banking financial companies (NBFCs), filed proposals with the RBI to raise USD 3.58 billion through ECBs via the automatic route. While this figure represents only a slight year-on-year increase, the report expects this number to rise further in the coming months, reflecting stronger inflows.
Overall, the report suggests that the combination of Fed rate cuts, a widening interest rate gap between the US and India, and increasing FPI inflows will provide continued support to the Indian rupee in the near future.
Doubts Revealed
Fed Rate Cuts -: The Fed, or Federal Reserve, is the central bank of the United States. When it cuts rates, it means it lowers the interest rates, making borrowing cheaper.
FPI Inflows -: FPI stands for Foreign Portfolio Investors. These are people or companies from other countries who invest money in India’s stocks and bonds.
Union Bank of India -: Union Bank of India is a big bank in India. It provides various financial services like loans, savings accounts, and reports on the economy.
Indian Rupee -: The Indian Rupee is the money used in India. It’s like how the US uses the Dollar.
Liquidity -: Liquidity means how easily money can be moved or used. More liquidity means more money is available to use or invest.
Interest Rate Differential -: This means the difference in interest rates between two countries. If India’s rates are higher than the US, it can attract more foreign investments.
All-time low -: All-time low means the lowest value ever recorded. Here, it means Rs 83.99 is the weakest the Indian Rupee has ever been against the Dollar.
