MUMBAI: The Indian rupee is expected to open higher on Thursday, tracking a decline in the dollar against Asian currencies after the US Federal Reserve signalled a pause in its rate-hike cycle.
Non-deliverable forwards indicate the rupee will open at around 81.66-81.70 to the US dollar compared with 81.8175 in the previous session.
The Fed, along expected lines, raised interest rates by 25 basis points and removed a reference from its previous statement that additional hikes would be needed.
The guidance now is that the extent to which additional policy firming may be appropriate will depend on how the economy, inflation and financial markets behave in the coming weeks and months.
“The language shift is important and signals that the bar to justify future rate rises is now higher,” ING Bank said in a note.
“With (US) lending conditions rapidly tightening in the wake of recent bank stresses, we think this will mark the peak for interest rates with recessionary forces set to prompt interest rate cuts later this year.”
Goldman Sachs said the Fed May outcome was supportive of their call for a pause at the next meeting in June.
In addition to the change in guidance, it pointed to Fed Chair Jerome Powell’s remarks during his press conference that the alteration in guidance was a “meaningful change”. US yields dropped post the Fed outcome with the 2-year slipping to its lowest in almost a month.
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The dollar index is down to near 101.
Asian currencies were up 0.2% to 0.9%. In line with rest of Asia, USD/INR will be offered at open, and then “we will just have to see if RBI is there”, a spot dealer said.
The Reserve Bank of India has being buying dollars via public sector banks over the last two sessions, according to traders.
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