New Delhi: Following a jam in domestic equities amid frailty in the Chinese Yuan, which hewed to a fresh 11-year low level, the Indian Rupee touched the 72 mark against the US dollar for the first time in 2019.
Foreign investors, who pulled out more than $3.4 billion from domestic equities in July-August, were spooked following the Budget proposal to hike surcharge on FPIs. There was immense pressure created on the rupee due to huge capital outflows, as a result of which it fell considerably against the US dollar.
The outflows seen in the Indian market post the Budget session could be reversed due to the removal of this enhanced surcharge on FPIs which is quite a big positive move for the economy and it helped the rupee to appreciate. It was overall a positive sentiment boost for the otherwise crashing Indian economy.
Reserve Bank of India (RBI)’s rate cuts, alongside the withdrawal of surcharge, brings hopes to borrowers. While on one side, the loan takers are benefited with the reduction in lending rates, on the other, the decrease in rates will affect those living off interests from fixed deposits.
The repo and reserve repo rates had been cut down by 35 basis points each, by the RBI, making it the fourth time during this year when the Central Bank has reduced the key rates.
The global market also has considerable influence over the Indian rupee. The US President, Donald Trump, describing breakthrough in the US-China trade war, said that the Chinese and American trade negotiators would “very shortly” resume talks. He said that Chinese officials had made two “very good calls” during the talks and that “they want to make a deal”.
On the sidelines of this year’s G-7 Summit held in France, Prime Minister Narendra Modi also had a crucial meeting with US President Donald Trump as both the leaders are looking for solutions on the trade front. Trump is looking forward for India to open its markets to the US and reduce its tariffs.
Summing up, the current situation for the Indian currency hints that the rupee will soon become stronger against the dollar.