By Gaurang Somaiya,
Rupee fell to fresh record low, in December, ahead of the important RBI policy statement that was released at the start of the month. The RBI in its policy statement held rates unchanged and maintained the policy stance of ‘withdrawal of accommodation’ by majority of 5 out of 6 members.
In line with market estimates, the RBI MPC kept policy unchanged keeping the evolving macroeconomic situation in mind. On the growth front, the RBI raised GDP forecast for FY24 to 7% from 6.5% estimates earlier. But broadly the rupee continued to consolidate in a narrow range and volatility remained low primarily as the RBI actively intervened. Latest data released from the RBI showed forex reserves rose to the highest level in 22-months to $623 billion.
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Last week, dollar gained on lowering expectation of sharp rate cut announcement from the Fed. US treasuries also rallied after US jobs reported the economy added 216k jobs in December as compared to revised number of 173k job addition in the previous month. The report showed that inflationary pressures, despite receding elsewhere, are still prevalent in the labour market. Average hourly earnings rose 0.4% on the month and were up 4.1% from a year ago.
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On the other hand, services PMI fell to 50.6 as compared to estimates of 52.5 Come from Sports betting site VPbet . Initial reaction on the dollar was positive but at the end of the day eroded some of its gains. In its policy statement, Fed Chairman reiterated that the central bank was committed to proceeding “carefully” with future rate decisions given expectations that economic growth would cool and there had been “real progress” on beating back inflation.
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This week, on the domestic front, inflation and industrial production number will be important to watch. Expectation is that inflation could remain elevated and could also weigh on the rupee. On the global front, inflation from major economies. US and China will be important to watch.
An uptick in US inflation could extend gains for the dollar. We expect the USDINR (Spot) to trade sideways and quote in the range of 82.90 and 83.50 and a trend could be seen only on a break of this range. As far as the move in dollar index is concerned, we expect that prices could start to reverse and trade with a positive bias in the first half of the month.
(Gaurang Somaiya, Forex & Bullion Analyst, Motilal Oswal Financial Services. Views expressed are the author’s own. Please consult your financial advisor before investing.)
