The Indian rupee strengthened by 46 paise to close at 95.23 against the US dollar on Monday, recovering from its previous close of 95.69. The currency's rally was driven by supportive statements from the Reserve Bank of India (RBI) governor and a softening of global crude oil prices amid hopes of a truce between Iran and the United States.
RBI Governor's Comments Boost Sentiment
RBI Governor Sanjay Malhotra, in an interview with a publication, stated that the rupee might actually be undervalued rather than overvalued after its recent depreciation. He said, "With the recent depreciation, it would be reasonable to think that the rupee is not overvalued. If anything, one could argue that the rupee has become undervalued, both in nominal as well as in REER (real effective exchange rate) terms." This remark helped calm market nerves.
Madan Sabnavis, Chief Economist at Bank of Baroda, attributed the rupee's strength to the RBI's strong statements. "The rupee has strengthened, and the credit goes to the RBI for some strong statements made - the most significant being that the rupee may actually be undervalued rather than overvalued due to this successive depreciation witnessed of late. This, along with the assurance given on intervention if required, has cooled the markets on Monday morning, along with of course the price of crude coming down," he said.
Intervention and Balance of Payments
The governor also assured that the RBI would use all available instruments to ensure orderly exchange rate adjustments that reinforce financial stability. He noted that there was no undue concern on the balance of payments front, which would require concerted efforts by the government, RBI, and other institutions. He added that intervention is acknowledged as a legitimate tool by the International Monetary Fund (IMF).
Crude Oil Prices and Geopolitical Factors
The rupee's gains were further supported by a decline in crude oil prices in international markets, driven by hopes of a peace deal between Iran and the US. However, uncertainty remains elevated as US President Donald Trump stated that the Hormuz blockade would continue until a final agreement is formally signed. Jateen Trivedi of LKP Securities noted that this uncertainty could limit further gains.
Market Outlook
The rupee had touched a low of 96.96 against the dollar last week before recovering 173 paise. Dealers expect further appreciation if a peace deal is signed and oil prices decline further. The currency's movement will also depend on the RBI's intervention stance and global economic developments.
Overall, the combination of dovish RBI commentary and easing crude oil prices has provided a much-needed boost to the rupee, restoring some confidence in the currency after its recent slump.
