Indian rupee appreciated against the US dollar on Tuesday due to the interventions of the Reserve Bank of India (RBI) and drop in the international price of crude oil. The appreciation is attributed to the positive sentiments in the market due to the drop in the price of crude oil, which had eliminated the fears about the import bill of India. The interventions of the central bank have stabilized the volatility in the foreign exchange market.
India is one of the major importers of crude oil; therefore, the price of crude oil plays a significant role in determining the value of rupee. Lower price of crude oil will result in the reduction of the cost of importation, and hence, the current account deficit. This has made investors feel optimistic about the market.
The interventions of the RBI in the foreign exchange market have been associated with the appreciation of the Indian rupee. It should be noted that the objective of the interventions of the central bank is to stabilize the exchange rate and not to target any particular exchange rate.
Other factors that contributed to the appreciation of the rupee were foreign portfolio investments, which have come in due to increased risk appetite, besides the low oil prices and backing from central banks. Investors were optimistic about the economy of India due to strong domestic demand, inflation expectations, and economic growth.
Nevertheless, it should be noted that risks for the rupee will still remain in the upcoming weeks because of global uncertainties such as shifts in the US Federal Reserve, geopolitics, crude oil price, and dollar index. A surge in the oil price would affect the rupee negatively once again.
It should be noted that the RBI will pay close attention to market situations and will try to avoid volatility in the Indian currency. Interventions by the RBI, along with favorable external conditions like low oil prices, are expected to support the Indian rupee.
In conclusion, the recent appreciation of the rupee shows the significance of policy decisions within the country as well as the commodity situation in the international markets in the movement of the currency. With the current scenario providing respite for the Indian currency, its future course will be dictated by the state of the international markets.
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