INR/USD
Rupee Weakens to Over Two-Month Low Ahead of RBI Policy
The Indian rupee slipped to its weakest level in over two months on Tuesday, closing at 96.42 against the US dollar, down 0.1% from the previous close. The decline was driven by outflows from local equities as investors awaited the Reserve Bank of India’s monetary policy decision scheduled for Wednesday.
Market participants widely anticipate a 25 basis point hike in the repo rate, with about 60% of economists polled by Reuters expecting such a move. Swap markets also indicate a modest chance of a larger 50 basis point increase.
To limit the rupee’s depreciation, state-run banks likely conducted dollar sales on behalf of the RBI. Additionally, the central bank is believed to have used dollar-rupee sell/buy swaps, open market bond sales, and reverse repo operations to absorb excess liquidity in the banking system ahead of the policy announcement.
The RBI last raised rates in February 2023. Investors will closely watch the policy statement for signals on the future direction of interest rates, particularly as the economy faces external headwinds.
Analysts at J.P. Morgan noted that a 25 basis point hike combined with hawkish guidance and tactical liquidity measures could offer near-term support to the rupee by increasing the cost of betting against it, especially amid persistent short positions linked to energy supply risks from West Asia.
Meanwhile, other Asian currencies traded in narrow ranges, and the dollar index remained steady around the 102 level.
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