Indian Rupee: Higher Oil Prices To Offset Gains From Lower DXY

5 May 2022 , 09:00 AM

The Indian rupee could extend some of its previous day gains to Thursday, 05 May 2022 although elevated crude oil prices are likely to weigh. Rupee gained traction yesterday after the central bank hiked benchmark interest rates in an unscheduled meeting. RBI raised the benchmark lending rate by 40 basis points (bps) to 4.40 per cent to contain inflation that has remained stubbornly above the target of 6 per cent for the last three months. The Monetary Policy Committee (MPC) headed by RBI Governor Shaktikanta Das also raised the level of deposits banks are required to maintain as cash reserve by 50 bps to 4.5 per cent to suck out Rs 87,000 crore of liquidity from the banking system. The CRR hike will be effective from May 21.

On Wednesday, rupee appreciated 8 paise to settle at 76.40 (provisional) against the US dollar following RBIs surprise rate hike ahead of the US Federal Reserves policy decision. At the interbank forex market, the domestic unit opened at 76.46 against the US dollar. It moved in the range of 76.17 to 76.58 during the session. The rupee finally closed at 76.40, registering a rise of 8 paise over its previous close. On Monday, the rupee had settled at 76.48 against the US dollar. The forex market was closed on Tuesday on account of Id-Ul-Fitr.

Domestic shares ended with steep losses on Wednesday, declining for the third straight day. The barometer index, S&P BSE Sensex dropped 1,306.96 points or 2.29% to 55,669.03. The Nifty 50 index lost 391.50 points or 2.29% to 16,677.60. Foreign portfolio investors (FPIs) sold shares worth Rs 3,288.18 crore, while domestic institutional investors (DIIs), were net buyers to the tune of Rs 1,338 crore in the Indian equity market on 4 May, provisional data showed.

Overseas, Asian stocks are trading higher on Thursday after the U.S. central bank raised interest rates by 50 basis points but sounded a less hawkish tone than some had feared. Markets in Japan and South Korea are closed on Thursday. US stocks jumped sharply on Wednesday after the Federal Reserve raised rates by a widely anticipated half percentage point and Chairman Jerome Powell ruled out getting even more aggressive in the central banks inflation-fighting campaign.

Meanwhile, dollar eased overnight after the Fed sounded less hawkish on larger rate hikes going forward although it raised benchmark interest rates by 50 bps in yesterdays FOMC, the largest since 2000 as policymakers urgently tried to tamp down inflation. The central bank also outlined a program whereby it will eventually cut its bond holdings by $95 billion a month. Fed Chair Jerome Powell emphasized the commitment to bringing inflation down, though he said a 75 basis points hike is ?not something the committee is actively considering.?

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