Currency Map:

USD/INR75.9175.78 0.17

Brent Crude closed at USD 102.35 VS prior week close of USD 109. Gold closed at USD 1948.Nifty closed at 17784 vs prior week close of 17670. 10 Year G-SEC Yield closed at 7.06%.

Major developments: USDINR traded in the 75.31-76.01 range last week and closed at 75.91 as against prior week close of 75.78. Rupee declined 0.17% w/w. EUR declined 1.98% w/w and GBP declined 0.80% w/w against Rupee. Indian benchmark Equity index climbed 0.64% w/w. 10 Year G-SEC Yield closed at 7.06%. 1 year fwd premia is at 3.82% p.a.

RBI maintained accommodative stance and kept repo rates steady. Reverse repo was hiked by 40 bps. GDP growth has been revised down to 7.2% from 7.8% and inflation is expected to average 5.7% in 2022-23. RBI Governor pledged to use all available tools to maintain economic stability as Global and Indian economy face challenges from Russian invasion.

Indian FX reserves dipped steeply to 606 bn as on April 1 st. FX reserves had swelled to USD 650 bn. RBI’S intervention to maintain steady FX rates may have been the primary reason for decline in reserves. 10 Year yield jumped 16 bps after RBI meeting.

In 2022-23, FII’S bought 7707 Cr of Equities in April till date and have bought Rs 1402 Cr of debt in April, till date. In 2021-22, FII’S net sold Rs 128897 cr in Equity segment and have net bought Rs 4805 cr of debt.

Focus is on US IIP and CPI.

Global developments: The week was dominated by Fed minutes. Federal Reserve officials continued to talk up the prospect of aggressive monetary policy in upcoming meetings. US 10 Year Yield surged to 2.70%.

The Fed is “well placed to begin the process of reducing the size of the balance sheet as early as after the conclusion of its upcoming meeting in May,” the Fed minutes showed on Wednesday.

Under the plan, the Fed would allow about $60 billion in Treasury securities and about $35 billion in agency MBS to roll off its balance sheet, which current stands at nearly $9 trillion.

Fed members also discussed the prospect of 50-basis-point rate hikes at one or more up coming meetings, but this was less hawkish than market expectations of 50 basis points at most meetings. 

The accounts of ECB’s March 9-10 meeting noted that “while the Russian invasion of Ukraine had increased uncertainty surrounding the macroeconomic outlook, related risks to the inflation outlook were seen as largely one-sided, with experience suggesting that wars tended to be inflationary”. Thus, the Governing Council could “no longer afford to look through higher inflation, even if it was driven by an adverse supply shock.”

ECB decided at the meeting to revise the plan for APP net purchases, with the option to end after June. “Easing bias” was removed from the forward guidance. Interest rate hike would come “shorter” after ending the net purchases, depending on incoming data.

On EU prospects, Chief Business Economist at S&P Global said: “The further reopening of the eurozone economy amid the fading Omicron wave has provided a welcome tailwind to business activity in March… However, the resilience of the economy will be tested in the coming months by headwinds which include a further spike in energy costs and other commodity prices due to Russia’s invasion of Ukraine, as well as worsening supply chain issues arising from the war and a marked deterioration in business optimism regarding prospects for the year ahead…

“The outlook for growth has therefore deteriorated at a time when the inflation outlook has worsened. A recession is by no means assured, as the extent to which the economy could suffer in the coming months will depend on the duration of the war and any changes to both fiscal and monetary policy.

Focus is on US CPI and ECB meeting.

Currency range : USDINR: 75.30( support), 76.10/76.70 (resistance), EURINR:82.20 (support)/ 83.50 (Resistance), GBP/INR: 98-100, JPY/INR:60-62.

Suggestions: USD exports can be covered on rally till 76.10. If USDINR spikes above 76.20, export hedging can be deferred. Payables can be covered at 75.30/74.95. EURINR payables can be covered at 82.20. GBPINR exports can be covered at 100.50+

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