Monday, 06 April 2015 06:15

Rupee appreciates as FOMC is patient in changing its monetary policy stance

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Rupee appreciates as FOMC is patient in changing its monetary policy stance.

Rupee opens high on 63.35 against yesterday closing of 63.62 as FOMC is patient in beginning to normalize the stance of monetary policy and sees this statement consistent with its earlier guidance to keep interest rate unchanged for considerable time.

The committee cited further improvement in labor market and expecting inflation to rise gradually towards 2% as labor market improves further Although there was no change in last lines saying that the Fed will keep interest rate below normal level in the long run even after employment and inflation are near mandate consistent level.

Market Players may wait for further improvement in labor market and inflation to see changes in Fed views on interest rate.

Dow 30 closed positive by 1.69% to 17356 after Feds comment. At domestic market Nifty and Sensex gained by 0.69% and 0.77% to 8085 and 26917. Other emerging Asian markets are also trading positive. Among emerging market currencies Indonesian Rupiah and Indian Rupee are appreciating while others are weakening against dollar.

In last five years trend it is observed that rupee depreciates till the last week of December and then after the trend reverses. The currency depreciation is more and earlier than expected. The effect of weak industrial production and trade deficit may weaken with fresh data release and government actions. Improvement in fundamentals, high inflow of FII in debt and equity market (1,97,716 crore till date-all time high), Govt sale of its stake holdings and upcoming reforms may support rupee in long run.

We may not see further heavy depreciation in rupee in near time and there may remain appreciation bias.


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