The Indian rupee fell after four consecutive days of gains on Wednesday, as the country’s widening trade imbalance and uncertainties around the imminent central bank decision weakened its attractiveness.
The partly convertible rupee finished at 79.16 per dollar, reversing gains from the previous session’s closing of 78.71.
According to a government official, India’s preliminary July trade imbalance increased to $31.02 billion from $10.63 billion the previous year as the nation paid more on crude oil and coal imports.
Funding the current account will be difficult, and inflationary concerns remain, skewing risks to the negative, according to Arora.
The rupee hit a five-week high of 78.49 versus the dollar on Tuesday, but is projected to stabilize between 79-80 in the short term.
No one wants to place large bets ahead of the Reserve Bank of India’s monetary policy announcement on Friday since the scale of the interest rate rise is unknown, according to a trader at a private bank.
A rate hike is unavoidable, but projections vary from 25 to 50 basis points (bps), with no clear agreement, according to a Reuters survey.
If the RBI does not hike rates as quickly as the Fed, the interest rate disparity between the US and India would grow, prompting further foreign money outflows from the nation.