The Indian Rupee has achieved a five-day winning streak against the US Dollar, closing at 86.57. This trend is supported by a decline in the Dollar index and a significant reduction in India’s trade deficit. However, rising crude oil prices and a liquidity shortfall in the banking sector remain concerns.
The Indian Rupee has demonstrated remarkable strength against the US Dollar, marking its fifth consecutive day of gains on Tuesday, closing at 86.57 after a previous close of 86.80. This streak represents the longest increase in six months, attributed to a weakening Dollar despite ongoing selling by foreign portfolio investors amid rising crude oil prices.
In March, the Rupee has appreciated by 1.08 percent, reversing a downward trend that lasted five months. Foreign funds have withdrawn Rs 1.43 trillion this year, including Rs 4,488 crore on Monday, indicating continued selling pressure. The Dollar index, which measures the Dollar against a basket of currencies, fell by 0.04 percent to 103.32, hitting a more than 3.6 percent decline for the month, the most significant drop since November 2022.
India’s merchandise trade deficit decreased to a three-and-a-half-year low of $14.05 billion in February, largely due to a contraction in both exports and imports influenced by declining global petroleum prices and increasing economic uncertainty. Crude oil prices have risen for three consecutive days, with Brent crude at $72.10 per barrel and WTI crude at $68.63 per barrel at the latest update.
The banking sector is currently grappling with a liquidity shortfall of approximately Rs 2 trillion as of March 16. This situation could compel the Reserve Bank of India to absorb substantial capital inflows to stabilize liquidity and replenish foreign exchange reserves. Concurrently, Indian benchmark indices, Nifty and Sensex, surged over 1 percent on Tuesday, benefiting from favorable global conditions and robust domestic institutional investments.
In summary, the Indian Rupee is experiencing a notable recovery against the US Dollar, attributed to its longest winning streak in six months. This strengthening occurs amidst a historical low in trade deficits and rising crude prices, alongside liquidity challenges in the banking system that may necessitate intervention by the Reserve Bank of India. Optimistic market sentiment has also propelled Indian equity indices upward, highlighting the interplay of global and domestic factors in currency and economic performance.
Original Source: www.business-standard.com
