Context:
The Reserve Bank of India (RBI) announced on Wednesday its its plan to infuse Rs 1.9 lakh crore into the banking system through open market purchases of government securities and USD/INR swaps in March.
Liquidity Issues & RBI Measures
- Liquidity Measures By RBI
- “OMO Auctions” of 60,000 crores worth of buying government securities in 3 tranches.
- Forex Swaps
- A USD/INR buy sell swap of $5 billion (January 2025).
- A USD/INR buy sell swap of $10 billion (February 2025).
- Banks are feeling the strain of liquidity due to certain challenging conditions prevailing in the market and have approached the RBI for some additional measures.
Rupee Performance & Forex Market Trends
- Rupee Gains in a Weaker Dollar
- On March 5, 2025, the rupee appreciated by 0.36% from 87.27/USD to 86.96/USD.
- Yet other factors pushing the rupee higher
- USD weakness amid US economic concerns, RBI intervention through state owned banks, and global positive vibes aiding Asian currencies.
- General Performance of the Rupee
- Depreciation during FY25 stood at 4.09%.
- CY25 depreciation stood at 1.55%.
- An expected range for the rupee: ₹88~89 per USD anticipates a rate cut in April.
Global Issues Affecting Both INR and Dollar Index
- On an import specific note
- The 25% tariffs imposed on imports from Mexico & Canada.
- Chinese import duties doubled to 20%.
- The slew of protectionist measures has cast an uncertainty cloud over US economic growth & inflation.
Outlook
Short Term: INR should trade keeping an appreciation bias.
Long Term: INR may depreciate toward ₹88 89/$ with an April rate cut.
Liquidity Watch: The RBI’s intervention will play a key role in managing liquidity stress and stabilizing the money markets.
Source: TOI
