The Indian rupee traded within a narrow range against the US dollar in early trading on Monday, depreciating slightly by 5 paise to 86.76. This limited movement occurred despite significant foreign fund outflows and a negative trend in domestic equities. Forex traders noted a negative bias on the rupee due to dollar-buying activity by foreign banks and importers seeking to secure dollars amidst global economic uncertainty.
The rupee fluctuated between 86.68 and 86.76 during initial trading. Concurrently, the dollar index, measuring the dollar’s strength against other major currencies, was slightly down by 0.02% at 106.68.
Despite a weakening dollar index, the rupee’s relative stability, confined between 86.60 and 86.90, is attributed by Amit Pabari of CR Forex Advisors to likely intervention by the Reserve Bank of India (RBI). He suggests the RBI has been both accumulating reserves at lower levels and selling forwards at higher levels to prevent excessive depreciation.
Brent crude oil futures saw a slight increase of 0.12% to $74.83 per barrel. Domestically, the stock market experienced declines, with the BSE Sensex down 0.50% at 75,561.71 and the Nifty down 0.5% at 22,814.50.
Foreign institutional investors (FIIs) continued to withdraw funds from the Indian equity market, selling Rs 4,294.69 crore worth of equities on Friday. Pabari highlighted that these ongoing FII outflows are putting downward pressure on the rupee. He also noted the potential impact of the RBI’s increased government securities purchase target ($4.61 billion) on liquidity and the potential risk of renewed tariff tensions from the Trump administration.
In positive news, India’s forex reserves increased for the third consecutive week, rising by $7.654 billion to $638.261 billion in the week ending February 7, according to the RBI.
