Indian rupee likely to inch up ahead of RBI decision after recovery tempers bearish run

MUMBAI: The Indian rupee is expected to open slightly firmer on Friday ahead of the central bank’s interest rate decision, supported by a brief recovery in the prior session that helped cool the recent bearish run.

The 1-month non-deliverable forward indicated the rupee will open in the 89.86-89.88 range versus the U.S. dollar, after settling at 89.9750 on Thursday.

The rupee had slid to an all-time low of 90.42 on Thursday before staging a recovery, helped by what one banker said was “natural” dollar selling.

The banker said that the quick run higher on dollar/rupee to near 90.50 “likely convinced a section of exporters and probably a few speculative accounts that this was a good level to sell into.”

“In hindsight, a correction was clearly due,” he added. “The question now is how long and to what extent this correction will run.”

Before Thursday’s recovery, the currency had declined more than 1% and was on a six-day losing streak, amplifying concerns about the underlying demand-supply imbalance in dollars.

The primary focus now shifts to the Reserve Bank of India’s rate decision in a couple of hours, followed by a press conference, where the RBI chief is expected to be asked questions on the rupee’s recent decline.

The overnight index swap market is pricing in virtually no chance of a rate cut. At the same time, economists are more divided on the outcome, with opinions split between a status quo move and a 25-basis-point reduction.

The RBI is likely to take a pause on interest rate cuts, despite the low inflation and robust GDP at this point, MUFG Bank said in a note.

The bank thinks the RBI may unveil steps to attract capital inflows, including from Non-Resident Indians, and says comments from the central bank chief on the rupee and forex outlook will be closely watched.