Bankers say that the expectation of a rate cut in the US next month is unlikely to help the overvalued Indian rupee, despite the appreciation of other emerging market currencies.
According to the Futubull Financial APP, bankers say that the expectation of a rate cut in the US next month is unlikely to help the overvalued Indian rupee, despite the appreciation of other emerging market currencies.
After Federal Reserve Chairman Powell announced last Friday that rate cuts would begin soon, the rupee remained almost unchanged on Monday. This is consistent with the rupee's recent poor performance, as it has failed to benefit from the overall decline of the US dollar.
Despite the decline of the USD index by more than 3%, the Indian currency has weakened slightly this month.
Meanwhile, currencies such as the Brazilian Real, Thai Baht, Indonesian Rupiah, and Malaysian Ringgit have appreciated by about 5%.
The Reserve Bank of India may welcome the poor performance of the rupee, as the Real Effective Exchange Rate (REER) of the rupee, which measures its competitiveness, reached a seven-year high last month.
According to the latest monthly bulletin of the Reserve Bank of India, the REER of the rupee against 40 currencies was 107.3 in July, indicating that the rupee was overvalued by about 7%.
Overvaluation means that the Reserve Bank of India may prevent a significant appreciation of the rupee's exchange rate.
Akshay Kumar, Global Market Head of India for BNP Paribas, said, "Despite the general weakness of the US dollar, the Reserve Bank of India has been maintaining currency stability. In our view, this provides an opportunity for REER to decline."
In a report, HDFC Bank, a private bank, stated, "From the perspective of policy makers, higher REER readings pose a risk to India's export competitiveness."
Affected by weak exports, India's commodity trade deficit in July surged to its highest level in nine months.
A senior trader at a public sector bank said that the possibility of the USD/INR exchange rate breaking 83.50 INR is "very small".
He said that the Reserve Bank of India had bought dollars near this level in July and is likely to do so again.
Surveys show that analysts still have a negative view on the rupee, despite increasing bullish bets on most Asian currencies in August.
