Do you find any relation between RBI intervention and the INR USD exchange rate?

The GARCH (1,1) model has been applied to the monthly data of exchange rate return and net intervention by the RBI from April 1993 to March 2013. The empirical results indicate that intervention does not affect the level of the rupee exchange rate.

What is the impact of increase in the dollar price of the Indian rupee on India?

Effect on inflation The Dollar index also impacts the inflationary trend in India. An increase in the Dollar index makes the dollar strong and depreciates the value of the INR. A weakened rupee makes imports costlier and impacts India Inc.’s profitability due to increased production costs.

What happens when RBI buys dollar?

Similarly, if RBI buys dollars to prevent the rupee from appreciating, it will lead to an injection of money into the domestic economy. This will cause interest rates to fall. To prevent this, after buying dollars, RBI can sell government securities and suck money out of the economy.

Why is RBI buying dollars?

This helps keep liquidity in the system unchanged despite RBI’s currency-market interventions, as dollar purchases would otherwise immediately release rupees into the financial system that already has a surplus of Rs 5.61 lakh crore. The RBI bears a ‘cost of holding’ for its ‘buy side’ market interventions.

Why is the rupee falling against dollar?

A large trade deficit signals greater reliance on foreign capital inflows and further weakens the Indian rupee in the Forex market. Even as all the economies in the world are going through an economic slump, an disproportionate trade deficit will result in creating a weak rupee value against the US dollar.

Why is RBI purchasing dollars?

But the central bank’s move is aimed at ensuring the rupee’s export competitiveness against a basket of emerging-market currencies that are also seeking a bigger share in global trade. In the past three days, the RBI is estimated to have bought about $2 billion worth of foreign currency.

Will Indian rupee depreciate further?

Higher energy prices put pressure on rupee as commodity prices are rising causing inflation.” Expecting further dip in rupee against dollar, Anuj Gupta of IIFL Securities said, “We are expecting that it may depreciate further to test 76 to 77 levels very soon.”

What factors affect USD INR levels?

Factors that affect exchange rates

• Inflation Rates.
• Interest Rates.
• Country’s Current Account/Balance of Payments.
• Government Debt.
• Terms of Trade.
• Political Stability and Performance.
• Economic cycle (expansion, recession, peak or through)
• Speculation by the market participants, banks, importers and exporters etc.