MUMBAI: The Indian rupee made slim gains on Wednesday after softer-than-expected US inflation data reassured investors that the Federal Reserve would likely hike interest rates in smaller increments.
The rupee was at 82.6325 per dollar by 10:30 a.m. IST, compared to its close of 82.8050 in the previous session.
The dollar index remained pinned at the 104-level, having dropped 0.9% overnight, while benchmark US yields declined to 3.50% after data showed US annual inflation cooled for a second straight month in November.
That all but ensured the Fed would raise rates by 50 basis points (bps) at its policy meeting later in the day, with speculation building of a lower terminal rate.
Fed funds futures now expect US rates to peak at just below 5% by around May, but those expectations are now dependent on the central bank’s dot plot projections as well as Fed Chair Jerome Powell’s speech after the policy decision later today.
Hence, the reaction to easing US inflation was slightly guarded on the day, with Asian currencies contained in a range.
Indian rupee likely to weaken ahead of key US inflation data
A weak yuan also weighed a bit on regional currencies after Chinese leaders delayed a key economic policy meeting amid growing signs that COVID-19 infections are surging in Beijing.
Meanwhile, the Reserve Bank of India (RBI) recently lifted the informal restrictions on rupee non-deliverable forward (NDF) trades it had placed on local banks in October, Reuters reported on Tuesday.
“This has contributed to the move higher in USD/INR spot and forward onshore as banks are selling in NDF and buying onshore,” wrote IFA Global Academy in a note.
The move indicates the RBI is comfortable with the level rupee is at and with trading positions that have been taken, said Anitha Rangan, an economist at Equirus Capital.
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