Weekly INR Watch: Decoding the Rupee's Global Dance

Feb 19th - 25th, 2024

Performance:

• The rupee weakened slightly against the USD this week, closing at 82.70 compared to 82.35 last week.
• It remained largely unchanged against the EUR, hovering around 88.50.
• GBP/INR saw a minor depreciation, with the rupee closing at 100.20 compared to 99.80.

Driving Forces:

• Global risk sentiment remained cautious, with concerns about the ongoing war in Ukraine and rising global interest rates weighing on investor sentiment.
• Domestic inflation concerns persisted, with retail inflation for January hovering near the RBI's upper tolerance limit of 6%.
• FPI inflows remained subdued, adding to the pressure on the rupee.

Macro Updates:

• India's GDP data for Q3 FY24 is due next week, with expectations of a moderate growth rate.
• The RBI's monetary policy meeting minutes will also be released next week, providing insights into the central bank's stance.

Upcoming Macro Data:

• GDP data for Q3 FY24 (Feb 28th)
• RBI's monetary policy meeting minutes (Mar 2nd)

Key Highlights:

• The rupee faced headwinds from global uncertainties and elevated domestic inflation, leading to a slight depreciation against the USD.
• RBI intervention likely helped prevent a sharper depreciation.
• The upcoming GDP data and RBI policy meeting minutes will be key factors influencing the rupee's performance in the coming week.

Further Observations:

• The RBI is likely to maintain its cautious stance, closely monitoring global developments and their impact on domestic inflation.
• Global risk sentiment and central bank actions will continue to play a crucial role in determining the rupee's direction.
• FPI flows are being closely watched, with their consistency crucial for sustained rupee stability.

Final Thoughts:

The rupee's outlook for the coming week remains cautious, with global uncertainties and domestic inflation concerns persisting. The focus will be on the upcoming GDP data and RBI policy meeting minutes for cues on the future trajectory of the rupee. While significant volatility is unlikely, some choppy trading within a defined range is expected.

Disclaimer: This analysis is for informational purposes only and should not be considered as investment advice.