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ICICI Direct Report
The rupee outperformed most of its peers in 2021 despite of strong dollar and surge in crude oil prices. Major reasons for the rupee outperforming were a rise in risk appetite in the global markets.
Also, inflation remained under Reserve Bank of India’s comfort zone, which helped the central bank to maintain lower borrowing cost to support the economic recovery. Additionally, balance of payment remained in surplus.
In 2021, yields in most major countries recovered on monetary tightening. Major central banks moved to tightening to control stubbornly high inflation. U.S. Federal Reserve started winding up its asset purchases programme opening the doors for a rate hike. UK became the first central bank in major countries to increase interest rates.
The rupee is likely to face resistance near 78 level and strengthen back to 72 levels in coming months as India seems to be in a better position to withstand any major shock from monetary tightening.
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