Despite the RBI's support, rupee pressure will continue: Social Security
As weakening global growth and the Federal Reserve's interest rate policy overshadow the Reserve Bank of India's intervention, Societe General predicted in a note on Friday that the Indian rupee will likely struggle versus the dollar.
According to Societe Generale analyst Kunal Kundu, "The RBI is likely to act at important levels such as 80."
However, rather than establishing long-term INR strength against the USD, "we believe that such actions would create chances to buy on declines in the USD/INR."
On Friday, the exchange rate of the rupee to the dollar was 79.88, barely changing from the previous session.
On the back of anticipation that the RBI may sell dollars to keep the currency from dropping below its record low of 80.0650, the rupee has been trading slightly above 80 levels in recent sessions.
The rupee has been remained steady at a level near 80 due to the resumption of foreign portfolio flows to equity. So far in August, foreign investment in Indian stocks has reached roughly $6 billion. The global growth slowdown story, Mr. Kundu said, "may operate as a hindrance to positive equity inflow momentum."
He also noted that some of the current momentum in equity portfolio inflows will be reversed if the Federal Reserve failed to adopt a dovish attitude and reassert its goal to limit inflation.
Following the weaker-than-expected U.S. July inflation statistics, Fed officials have maintained a rather hawkish tone in an effort to debunk speculation that rates may be slashed later this year.
The possibility that the Fed will increase rates by 75 basis points for the third time in a row next month is currently close to 60%, according to the market. Later in the day, Fed Chair Jerome Powell will give a speech in Jackson Hole, Wyoming, which is likely to give further hints about the direction of rate hikes.