Amid Rupee's Rough Patch, RBI Governor Sees Relief From Soon-To-Be-Inked India-US Trade Deal

The recent pressure on rupee may come off when India and the United States agree on a trade deal, Reserve Bank of India Governor Sanjay Malhotra said on Thursday.

The rupee has been Asia's worst-performing currency, sinking 3.6% this year, amid souring trade relations between India and the US, and a flight of foreign capital from domestic equity markets.

The Trump administration imposed a 50% tariff on Indian goods in August, half of which is a penalty for the purchase of Russian oil.

Foreign portfolio investors have pulled out over $16 billion from Indian stocks so far this year.

Malhotra said the rupee depreciation is also based on fears of a widening trade deficit. India witnessed the highest-ever deficit of $41.7 billion in October, fueled by a jump in gold imports and fewer shipments to the US.

"We are confident there will be a good trade deal with the US going forward," he said during the VKRV Rao Memorial Lecture at the Delhi School of Economics.

Malhotra also said the central bank does not target any level of rupee, and the recent depreciation of the domestic currency against the US dollar is due to demand for the greenback.

The governor also said that the Reserve Bank has "very good" buffers of foreign exchange reserves, and there is no need for concern on the external sector.

"We do not target any level. Why is the rupee depreciating? (It) is because of the demand...It's a financial instrument, and there is a demand for dollars, and if the demand for dollars goes up, the rupee depreciates; if the demand for rupee goes up, dollar comes down, then it appreciates," Malhotra said.

The rupee depreciated 12 paise to close at 88.70 against the US dollar on Thursday, on the broad strength of the American currency and fading odds of a rate cut by the US Federal Reserve.