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The relentless upward movements in crude oil prices since July led to increase in speculation in the foreign exchange market and such activities seem to have triggered the rupee's fall in recent months, according to an SBI research report.
Even as there has been policy changes to liberalise capital inflows, merchant and interbank market foreign exchange turnover give interesting insights regarding demand-supply matrix of foreign exchange, SBI’s ‘Ecowrap’, which was released on Wednesday, noted.
In the merchant market—in both spot and forward segments—there was an excess demand in the range of $9-14 billion since February 2018. However in the interbank market, the trend is quite opposite and there has been excess supply.
Specifically, in August the excess demand in merchant segment was far outstripped by oversupply in interbank market, the report said. “This indicates that speculation may have triggered a currency fall.”
The report also said the Reserve Bank of India should have created a special window for oil marketing companies and have taken out the $400-450 million daily dollar demand.
The rupee on Wednesday strengthened by 17 paise to close at 70.62 against the greenback as global crude oil prices slipped below the $60 per barrel mark amid a smart recovery in domestic equity markets.
The Indian currency had breached the level of 74 against the dollar in October.
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