Weekly INR Watch: Decoding the Rupee's Global Dance

(Feb 26 - Mar 3)

Performance:

• The rupee remained largely stable against the USD this week, closing at 82.30 compared to 82.35 last week.
• It appreciated slightly against the EUR, moving from 88.70 to 88.20.
• GBP/INR saw a minor depreciation, with the rupee closing at 99.50 compared to 99.80.

Driving Forces:

• Global risk sentiment remained cautious, with lingering concerns about the war in Ukraine and its impact on commodity prices.
• Domestic inflation concerns eased slightly, with provisional January Wholesale Price Index (WPI) data showing a cool-off to 4.92%.
• FPI inflows remained subdued, with investors adopting a wait-and-see approach ahead of key data releases and the RBI policy meeting.

Macro Updates:

• The Reserve Bank of India (RBI) maintained its key benchmark rates unchanged at the monetary policy meeting on February 28th, as expected, prioritizing growth amid moderating inflation.
• India's trade deficit for January widened to $26.7 billion, higher than market expectations.

Upcoming Macro Data:

• Euro Area and UK PMI Data (March 5th)
• Jobless claims data US (March 7th)
• ECB monetary policy meeting (March 9th)

Key Highlights:

• The rupee's stability this week can be attributed to the RBI's dovish stance and easing domestic inflation concerns.
• The wider trade deficit, however, poses a renewed challenge for the currency.

Further Observations:

• The upcoming global PMI data and central bank meetings, particularly the ECB, will be crucial factors influencing market sentiment and the rupee's trajectory.
• FPI flows will continue to be closely monitored, with their direction impacting the rupee's short-term volatility.

Final Thoughts:

The rupee's outlook for the coming week remains cautious, with global uncertainties and data-dependent sentiment. While the RBI's dovish stance provides some support, the wider trade deficit and upcoming global events could lead to choppy trading in the near term.

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