Domestic liquidity may improve with the appreciation of Indian rupee against the USD

Impact: Positive (Domestic Liquidity), Negative (Exports, Inflation)

Brief: Indian rupee has been appreciating against the USD at a faster rate over the last two weeks, reaching a two-month high of 70.65 in the fourth week of November. Appreciation in the Indian rupee will give leverage to the RBI in accumulating forex reserve, which will in turn positively impact the domestic liquidity. In other good news, fall in crude oil prices will lower India's oil import bill by $4.56 billion in November as compared to the previous month.

Indian rupee has been appreciating against the USD at a faster rate over the last two weeks and has reached a two-month high of 70.65 in the fourth week of November. It is noted that the currency pair had dropped to an all-time low of 73.99 in September 2018. Appreciation of Indian rupee will give leverage to the RBI in accumulating forex reserve and thereby positively impact the domestic liquidity as well. The movement in the currency pair is primarily driven by crude oil price and net capital outflows.

In October, 2018, crude oil price had reached four year high of $80 per barrel. In rupee terms, the price was Rs. 5,897 per barrel. However, with the soften oil price and appreciating domestic currency the oil price has dropped by Rs. 950 to Rs. 4,946 per barrel. As per our assessment, this will lower India's oil import bill by $4.56 billion in November as compared to the previous month. As crude oil imports account for around 30% in the overall import basket, higher oil price was widening India's trade deficit and thereby adversely impacting the rupee.

Similarly, Emerging Markets are experiencing higher capital outflows as a result of Fed's withdrawal of accommodative monetary policy. However, with softening US inflation rate along with the stabilization in the unemployment rate, the market is expecting stability in Fed's monetary view. Therefore, net capital outflows from the US have turned positive for first time in September, 2018 in a six-month time frame. This gives a sense of improvement in the value of the domestic currency (Rupee) and overall domestic liquidity condition in the emerging markets.

Movement in USD-INR Exchange rate:

Source: Acuité Research, CMIE

Our exciting journey started in 2005 with rating of bank borrowers most of whom were small and medium enterprises. At that time, credit rating was a concept known only to large issuers of capital market instruments. Since then, like a caterpillar transforms itself into a beautiful butterfly, we transformed to rate bonds, bank facilities of large corporates and issuers across industries. Along came many achievements - SEBI Registration in 2011, RBI accreditation in 2012, 50,000 ratings in 2018, 5,000 Bond and Bank Loan Ratings in 2017, launch of India's first Android and iPhone app to disseminate rating, tamper-proof QR-code-enabled rating rationales, and SMERA Terminal to name a few.

Now is the time to re-emphasize our increasing footprint across all segments of ratings through the launch of our new name - 'Acuité'.

The name has changed. The spirit of upholding highest standards of analytical rigour, continuous improvement, excellence in our processes and quest for innovation remains the same. We would like to re-emphasize that we will continue to work hard to provide independent, unbiased and timely opinion of highest standard.

Acuité means 'sharpness and clarity of thought and vision'. Let our research and ratings help you take decisions with confidence.


Sankar Chakraborti
CEO