The Indian Rupee opened stronger and remained under the 87 mark on Thursday as the Reserve Bank of India infused additional liquidity into the banking system to boost growth.
The rupee strengthened by 7 paise to open at 86.89 against the US Dollar, according to Bloomberg data. The domestic unit closed at 86.96 against the greenback on Wednesday.
The central bank on Wednesday said that it will infuse more liquidity via a $10 billion FX swap and Rs 1 lakh crore in open market operations, which is more than what the Street had anticipated. This move is expected to shift durable liquidity from a slight deficit to a surplus by the end of March, Citi Research said.
The RBI's measures are designed to ensure there is no sudden tightness in liquidity at the end of the fiscal, coinciding with the tax outflow in March, Citi noted.
The liquidity management announcement could help growth and could have a positive impact on the spot rate, according to Anindya Banerjee, Senior VP at Kotak Securities.
Meanwhile, a fall in crude oil prices also helped the currency. Oil prices fell to the lowest level since May 2023. The Brent crude was up 0.56% at $69.69 a barrel as of 9:20 a.m. IST, and the West Texas Intermediate was up 0.54% at $66.67.
Although domestic factors are turning positive for the rupee, liquidity deficits and FII outflows continue to exert pressure, according to Amit Pabari, managing director of CR Forex Advisors. "However, a shift in these conditions could drive a strong appreciation with 87.20 acting as a strong resistance, moving towards 86.40 and 86.10 levels."
The dollar index tumbled 1% in the previous session, taking the monthly fall in March so far to 3.07%, the biggest fall since November 2022.
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