Depreciating Indian Rupee Is A Major Concern: BoB

The Bank of Baroda (BoB) on Thursday in its report said that the depreciation of the Indian rupee is a major concern and it will remain under pressure.

Indian rupee depreciated to a fresh record-low of USD 79.36 in July 2022 weighed down by a stronger dollar and persistent FPI outflows, it said.

The rupee, however, appreciated 7 paise to 79.92 against the US dollar in early trade on Friday as a firm trend in domestic equities and fresh foreign fund inflows strengthened investor sentiment.

Apart from this, the report mentioned that the unfavourable domestic macros are also putting pressure on INR. The trade deficit touched a new record high of USD 25.6 billion in Jun 2022, raising concerns on the external front. 

"The most notable fact of late has been the depreciation of INR which is touching a record low every other day. RBI came up with measures to support external stability. Volatility in global yields has also been a concern, which has reversed the increase seen in Jun 2022, on account of signs of recession visible in muted macro prints globally and inversion of the US yield curve," it mentioned. 

Globally, central banks have reaffirmed their commitment to maintaining price stability with a majority of Fed Governors hinting at a 75bps rate hike in July 2022. On the domestic front, the RBI governor also spoke of ‘increasing signs of sectoral price spillovers’. Today’s inflation print will give further cues on the same.

The report also said that the economy continues to recover with some indicators of signalling strength (air passenger traffic, services PMI print). However, it should be seen with caution as these are led by a favourable base. 

Other consumption indicators such as auto sales, digital transactions and electricity demand have moderated on a sequential basis. However, with the steady decline in Covid-19 cases, google mobility indices are signalling an uptick, it said.