The Reserve Bank of India has likely intervened to limit the rupee’s fall, traders said, while also noting that the currency’s gradual depreciation is likely to continue in the absence of a trade deal with the United States.
“Let’s see what happens in the coming months,” India’s trade secretary said on Monday, referring to the ongoing negotiations. “There is a reasonable expectation that both countries will be able to agree on a deal to reduce mutual tariffs,” he said.
Indian merchandise exports to the US, the country’s largest export market, rose more than 21% year-on-year in November, data released on Monday showed.
This helped reduce the country’s trade deficit to a five-month low of $24.53 billion last month. The improved data provided only temporary relief for the currency in light of continued corporate hedging demand and likely portfolio outflows, traders said.
Foreign investors have sold a net of more than $18 billion worth of local stocks to date, on track to be the worst annual outflow on record. Negatively skewed dollar flows and trade gridlock have prevented the rupee from benefiting from a broadly weaker dollar, which is on track to end the year down more than 9% against a basket of major currencies.
The focus now turns to the RBI’s three-year dollar-rupee buy/sell swap auction, scheduled for Tuesday. Bankers expect the swap to be fully subscribed, but say corporate yields could decline because of higher hedging costs.
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