Indian rupee ends higher as rate-cut boost for equities blunts dollar strength

MUMBAI: The Indian rupee strengthened modestly on Friday as the Reserve Bank of India’s steepest rate cut in five years boosted local equities, helping the South Asian currency eke out a gain even as the dollar firmed against major peers.

The rupee closed at 85.6250 against the U.S. dollar, up from its close at 85.79 in the previous session. The rupee declined 0.2% on the week.

The Reserve Bank of India (RBI) cut its key repo rate by 50 basis points on Friday and slashed the cash reserve ratio (CRR) for banks as low inflation gave policymakers room to focus on supporting growth.

India’s benchmark equity indexes, the BSE Sensex and Nifty 50, about 1% each on Friday, posting their best one-day gain in two weeks as the rate cut fuelled domestic growth expectations.

India’s benchmark 10-year bond whipsawed between gains and losses as traders digested the central bank’s policy moves, including a shift in stance from ‘accommodative’ to ‘neutral.’

Indian rupee falters as bullish exits, dollar strength collide

The yield on the benchmark paper was last quoted a tad higher at 6.2237%. Meanwhile, dollar-rupee forward premiums fell in reaction to the rate cut with the 1-year implied yield dropping 10 basis points to 1.81%.

The Indian central bank’s “larger-than-expected 50 bps rate cut and 100 bps cut in the cash reserve ratio should support INR,” DBS said in a Friday note.

“We will consider lowering USD/INR’s forecast if the US Federal Reserve pivots towards a rate cut later this year and sets the stage for more USD weakness,” the noted added.

On the day, the dollar index was up 0.3% at 98.9 in the run-up to release of closely watched U.S. non-farm payrolls data which will offer cues on how the world’s largest economy is faring in the face of trade policy spurred uncertainty.