Indian rupee declines in afternoon trade

3 Aug 2022 , 02:43 PM

As concerns about the nation’s worsening external balance increased in the wake of a record trade deficit, the Indian rupee saw a significant decline in value during Wednesday’s afternoon session. Losses in the local stock market also contributed to the decline.

At 08:00 GMT, the partly convertible rupee was trading at 79.04 per dollar, up from Tuesday’s finish of 78.7125. According to a government official, India’s preliminary trade deficit for July increased from $10.63 billion to $31.02 billion, driven by an increase in imports of coal and crude oil.

“The steep increase in the current account deficit has raised concerns, and the most recent trade data further fuel those worries. We may observe some reversal of the recent surge in the rupee following the Reserve Bank of India’s (RBI) monetary policy announcement on Friday “According to a senior trader at a foreign bank.

The rupee increased to 78.49 on Tuesday, its highest level since June 28. After seeing its greatest gain in weeks, the dollar held steady in turbulent trade as U.S. Federal Reserve officials talked up the possibility of future aggressive interest rate rises.

Although a rate increase by the RBI on Friday is a certainty, a Reuters survey found that expectations for the amount were evenly divided between 25 basis points (bps) and 50 bps.

The pair might quickly reverse if the next U.S. inflation print shows no signs of weakening or the U.S. labor market statistics stay solid, reinforcing the Fed’s huge rate increase expectations, economists at HDFC Bank wrote in a note. “We would advocate purchasing in the current rally,” they added.

If RBI does not hike rates as quickly as the Fed, the interest rate spread between the US and India would expand, which will lead to a greater outflow of foreign investment from the nation. The whole NSE share market in India was trading down by 0.3%.