Rupee will remain stable with positive momentum supported by FPI inflows: Union Bank

As the fed rate cuts have increased the liquidity in the Indian markets, the Indian rupee will get support against the dollar and will trade around Rs 83.57, highlighted a research report by the Union Bank of India.

The report highlighted that the rupee is expected to trade in the range of Rs 83.27 and Rs 83.99, with Rs 83.99 being its all-time low. It also noted that the rupee will trade in this range with positive momentum supported by foreign portfolio investors (FPI) inflows and general weakness in the US dollar.

"Based on the current global scenario, we shift our technical stance that INR should take support of 83.27 and will find resistance around 83.77 followed by the crucial level of 83.99 (All-time highs)" said the report.

The report emphasized that, based on the current global economic situation, the rupee should find support at Rs 83.27 and is likely to face resistance around Rs 83.77, followed by the critical level of Rs 83.99. If rupee breaches this resistance of 83.99, it could test levels of as high as Rs 84.16, which is based on Non-Deliverable Forward (NDF) market trends.

Looking ahead, the report highlighted that the interest rate differential between US and India is expected to widen as the Federal Reserve has implemented a significant rate cut of 50 basis points in its September FOMC meeting. While it is expected that the Reserve Bank of India (RBI) is likely to maintain its "Withdrawal of Accommodation" policy due to rising food inflation.

This interest rate differential is expected to attract more FPI inflows into India, providing additional support to the rupee.

This trend is already visible in the RBI's data on External Commercial Borrowings (ECB) inflows. In July 2024, Indian firms, including non-banking financial companies (NBFCs), filed proposals with the RBI to raise USD 3.58 billion through ECBs via the automatic route.

While this figure represents only a slight year-on-year increase, the report expects this number to rise further in the coming months, reflecting stronger inflows.

"RBI to raise USD 3.58bln through External Capital Borrowings (ECB) via automatic route. Even this figure shows only a marginal rise YoY basis, but going forward we expect this to rise this year" the report added.

Overall, the report suggested that the combination of Fed rate cuts, a widening interest rate gap between the US and India, and increasing FPI inflows will provide continued support to the Indian rupee in the near future.