RBI's bumper rate cut leaves rupee exposed to fresh depreciation risk
The Reserve Bank of India's surprise 50 basis point rate cut last week may have been a shot in the arm for growth, but it could come at a cost.Analysts quoted in a Reuters report warned that the move has left the rupee vulnerable to further depreciation by eroding foreign exchange forward premiums and weakening the currency's carry trade appeal.The rupee has already lagged behind its Asian peers in 2025, weighed down by tepid capital inflows. Now, with the RBI easing faster than the US Federal Reserve, the narrowing interest rate differential is expected to keep the rupee on the back foot.The fallout has been immediate. The 1-month USD/INR forward premium—sensitive to liquidity conditions—slipped to 7.5 paisa, its lowest since November. The 1-year premium, more closely tied to the U.S.-India rate gap, dropped to 1.5250 rupees, the weakest in nearly a year.Lower forward premiums make the rupee less attractive for carry trades, where investors borrow in low-interest-rate currencies to invest in higher-yielding ones. Exporters, who typically hedge their future receivables, may find less incentive to do so. On the other hand, importers—looking to cover near-term obligations—could ramp up hedging, further pressuring the market.The result? A more volatile rupee, with fewer buffers against global shocks.The RBI's 50 bps repo rate cut, well above the expected 25 bps, came alongside a reduction in the cash reserve ratio, signalling a strong shift toward growth-supportive policy amid subdued inflation.Mitul Kotecha, Head of FX and EM Macro Strategy Asia at Barclays, told Reuters that RBI's rate cut has reduced rupee's appeal significantly. 'In a market where carry is back in focus, that hurts.'Dhiraj Nim, FX strategist at ANZ Research, told the news agency that falling premiums are a 'mild added headwind' for the rupee. He warned that if India's growth momentum stalls, there may be room for yet another rate cut.Tune InMust Watch
advertisement
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
&w=3840&q=100)
Business Standard
23 minutes ago
- Business Standard
Two-wheeler sales may cross pre-Covid levels in FY26 on export rebound
India's two-wheeler industry is expected to cross its pre-Covid peak in FY26, with sales volumes projected to grow by 8–9 per cent, according to a new report by CareEdge Ratings. This follows an 11 per cent growth in FY25, driven by robust domestic demand and a strong rebound in exports. Despite a high base and headwinds like the implementation of the new OBD-II Phase-B emission norms, the overall outlook remains upbeat. Factors such as easing inflation, improved rural sentiment, rising disposable incomes—helped by new tax rebates for individuals earning up to ₹12 lakh annually—and a cumulative 100 basis points (bps) interest rate cut by the Reserve Bank of India (RBI) since February are expected to bolster demand. 'The two-wheeler industry is set to vroom past pre-Covid levels in FY26, aided by strong export momentum, rising EV penetration, and improved affordability,' said Madhusudhan Goswami, Assistant Director at CareEdge Ratings. In FY25, India's two-wheeler industry recorded 11 per cent overall volume growth, driven by a 9 per cent rise in domestic sales and a robust 21 per cent recovery in exports. Scooter sales led the growth trajectory with a 17 per cent increase, while motorcycle sales grew steadily by 9 per cent, reflecting sustained demand across segments and geographies. Volume growth has remained steady over the last three years — 8 per cent in FY23, 10 per cent in FY24, and 11 per cent in FY25. Notably, rural India contributed 58.3 per cent to total retail registrations in FY25, up from 57.9 per cent in FY24. Scooters have led the growth curve, registering three consecutive years of double-digit expansion — 26 per cent, 13 per cent, and 17 per cent. While motorcycles continue to dominate volumes due to their fuel efficiency and affordability, scooters are rapidly gaining ground in urban markets. Electric two-wheelers (E2Ws) are also emerging as a key contributor. E2W sales hit 1.2 million units in FY25, accounting for around 5 per cent of total two-wheeler volumes. The segment grew 29 per cent in FY24 and 19 per cent in FY25, reflecting growing consumer acceptance. In FY25, entry-level motorcycles held a 72 per cent share of the market, registering 8 per cent year-on-year growth. Executive motorcycles made up 20 per cent of sales and grew 12 per cent, while premium motorcycles held an 8 per cent share, growing 10 per cent during the year. This reflects a gradual diversification in consumer preferences across price points. Though entry-level motorcycles remain the volume driver, their share has declined from 75 per cent in FY19 to 72 per cent in FY25. A recovery has been visible since FY23, supported by improved rural demand and affordability. Executive and premium motorcycles are gaining traction, supported by aspirational urban buyers and a slew of new model launches. This trend signals a maturing market with more diverse consumer preferences. Exports, which accounted for 18 per cent of total volumes in FY25, are expected to rise by 12–14 per cent in FY26. This rebound follows stabilisation in key African and Latin American markets that previously faced inflation and currency pressures. Arti Roy, Associate Director at CareEdge Ratings, said: 'The domestic market may see a slight moderation in growth due to a higher base, but exports and EVs will help sustain overall momentum. While manufacturers remain optimistic, data from the Federation of Automobile Dealers Associations (FADA) indicates cautious optimism among dealers. Dealers expect mid- to high single-digit growth in FY26, supported by festive demand and new launches. However, concerns remain around tight credit norms, lingering consumer caution, and the potential impact of global tariff tensions on investor sentiment and disposable incomes. Month-on-month retail sales rose 11 per cent in May, buoyed by Gudi Padwa and Eid. However, year-on-year sales dipped 1.7 per cent, reflecting subdued sentiment and pre-buying slowdowns ahead of OBD-II Phase-B price hikes. Additional pressure points include low footfalls, rising operating costs, over-expansion of dealer networks, and intensifying competition from electric vehicle startups.
&w=3840&q=100)
Business Standard
24 minutes ago
- Business Standard
SPMCIL delivered 3.4 tn refined gold to RBI in FY25, says FM Sitharaman
The Security Printing and Minting Corporation of India Ltd (SPMCIL) delivered 3.4 metric tonnes of refined gold to the Reserve Bank of India (RBI) in FY 2024–25, Finance Minister Nirmala Sitharaman said on Monday. The gold was refined from seizures transferred by the Customs department. 'You purified it, and post-purification you sent it to the RBI, and that alone for one financial year 24–25 — 3.4 metric tonnes,' she said, speaking at the inauguration of SPMCIL's new corporate office. Sitharaman added that SPMCIL also refines silver and gold received from institutions such as the Tirumala Tirupati Devasthanams and the Vaishno Devi Shrine Board. She noted that SPMCIL has significantly advanced in precious metal refining, especially after the 2021 Budget. Earlier, all confiscated and smuggled gold used to be handed over to the State Bank of India, which would auction it back into the market. To discourage this, a conscious decision was made—guided by the Prime Minister—that instead of auctioning, the gold should be purified and added to the RBI's gold reserves. The Minister said that once legal processes are completed in each case of smuggled gold, SPMCIL ensures its purification to meet the quality standards required by the RBI. The RBI holds this gold as bullion, which must conform to global standards. Since international prices are based on Troy ounces, the purity of each ounce must match global benchmarks. Even as India pushes for digital payments and fintech adoption, Sitharaman underlined that currency notes and coins remain relevant. 'Although we talk about Digital India, payments, fintech and so on, there are still currencies required for circulation. It doesn't have to be as much as before but it is still there,' she said. Sitharaman informed that in the last financial year ending March 31, 2025, SPMCIL produced 1,200 crore banknotes and 150 crore circulation coins. 'Then you've also done 1.5 crore passport booklets, all in one year. 700 crore excise adhesive labels, and various categories of postal and security-related stationery, which is essential for government and public services,' she added. She also hinted at a potential upgrade of the public sector unit. 'So proof that you are actually moving in the right, professionally run organisation scheme of things. No wonder the MoS (Finance) commented that it might be just the right thing for us to see if you're going to move to be Navratna... So I'm just saying that again only to make sure that all of you say yes to the idea which makes you perform to make yourself Navratna,' she said. Following its capital restructuring in 2015, SPMCIL fully repaid its loan with interest by 2016–17, the Minister stated. In FY 2023–24, the company paid a dividend of ₹364 crore, following a record ₹534 crore dividend the previous year. 'It is heartening to note SPMCIL's consistent and reliable financial performance,' Sitharaman said. The Minister also praised the popularity of souvenir coins issued by SPMCIL. 'I am equally impressed with the popularity of all the souvenir coins that you produce. They are very important in promoting the rich cultural heritage, history and art,' she said. 'In free India's recorded history, a total of 210 commemorative coins have been issued, out of which 105 have been issued in the last decade,' she added. These include coins celebrating events such as the 2,900th birth anniversary of Jain Tirthankar Shri Parshvanath Bhagwan, the 550th Prakash Purab of Guru Nanak Dev, the new Parliament Complex, 1,000 years of the Brihadeeswarar Temple, and India's G20 Presidency. Over 20,000 coins have been purchased by the public from the new series of colour souvenir coins themed around the Panchatantra, endangered species, and the Shri Ram Janmabhoomi Temple in Ayodhya, according to Sitharaman.
New Indian Express
32 minutes ago
- New Indian Express
IT firms double down on GCC expansion to tap growing opportunity
BENGALURU: Many Indian IT services firms have now started focusing on Global Capability Centres (GCC) by appointing a separate head to lead and expand the company's GCC capabilities. After Infosys and Wipro, HCLTech recently announced the appointment of Kiran Cherukuri as Global GCC Practice Leader. HCLTech plans to double down on this fast-growing segment with a sharp focus on India. "The GCC's build, operate and transfer (BOT) market is one of the few fast-growing sectors in an otherwise slow market. Firms are increasing their investments to capture their share of this attractive market and as they increase their focus and investments, they are appointing new leadership," Peter Bendor-Samuel, Founder and Executive Chairman of Everest Group told TNIE. He added that as Accenture and other industry leaders announce significant wins in GCCs, it has become obvious to all that they must increase investment and put some of their stars into competing in this space. Last year, Accenture made an equity investment in GCC platform ANSR. Though the company did not disclose the investment amount, it is said that Accenture will be investing close to USD 170 million. According to Everest Group, GCCs account for about USD 13 billion of revenue to IT services companies across various engagement models, including setups, transformation, and operational support and that the GCC in India is a $65 billion market and has been growing at 8%. Experts anticipate that this market will accelerate to double-digit growth.
