The Indian Rupee has strengthened against the US Dollar, closing at 86.57, marking the longest winning streak in six months. Despite selling by foreign investors, the trade deficit has decreased significantly. Furthermore, liquidity challenges persist in the banking sector, while Indian stock indices showed positive performance amid favorable global sentiments.
The Indian Rupee recorded its longest winning streak in six months, appreciating against the US Dollar for the fifth consecutive session on Tuesday. It closed 23 paise higher at 86.57, up from 86.80 on Monday, according to Bloomberg data. This marks the first time since September that the Rupee has seen five days of gains, with an overall increase of 1.08 percent in March following a series of five months of decline.
Despite the Rupee’s strength, foreign portfolio investors have continued their selling activities, divesting approximately Rs 1.43 trillion thus far in the year. On Monday alone, they sold Rs 4,488 crore, based on data from NSE. Meanwhile, the Dollar index, which reflects the value of the US Dollar against a basket of currencies, dipped by 0.04 percent to 103.32, registering a monthly decrease of more than 3.6 percent—the most significant drop since November 2022.
India’s trade deficit also improved, falling to $14.05 billion in February, the lowest in three and a half years, attributed to decreased exports and imports due to declining global oil prices and rising economic uncertainties. In contrast, crude oil prices have risen for three straight days, with Brent crude increasing by 1.45 percent to $72.10 per barrel and WTI crude rising by 1.55 percent to $68.63 per barrel, as of 3:20 PM IST.
The banking sector is grappling with a liquidity deficit of approximately Rs 2 trillion as of March 16, according to financial analyst Pabari. This liquidity shortfall may compel the Reserve Bank of India to manage incoming flows actively to stabilize liquidity and rebuild its foreign exchange reserves. Indian benchmark indices, including Nifty and Sensex, gained over 1 percent on Tuesday, supported by positive global trends and robust buying from domestic institutions.
In conclusion, the Indian Rupee’s remarkable performance against the US Dollar reflects a crucial turnaround amidst challenging market conditions. Despite persistent selling by foreign investors and ongoing liquidity challenges within the banking system, improvements in India’s trade deficit and escalating global market sentiments have buoyed the local currency. As the Reserve Bank of India navigates these complexities, the implications are significant for both currency stability and economic growth.
Original Source: www.business-standard.com
