Competing cues, caution ahead of RBI policy decision keep Indian rupee nearly flat

MUMBAI: The Indian rupee ended nearly unchanged on Tuesday as divergent impulses ranging from portfolio inflows and importer hedging demand to caution ahead of the Reserve Bank of India’s monetary policy decision kept the currency in a narrow band.

The Indian rupee closed at 95.3775 per dollar, little changed from its close of 95.3375 in the previous session.

Traders pointed to foreign banks’ dollar sales – likely related to inflows for equity fundraises - alongside a pick-up in hedging activity from local oil companies and gold importers.

Meanwhile, an improvement in banking system rupee liquidity helped cool dollar-rupee forward premiums, with both near and far tenor premiums edging lower.

The focus now lies squarely on the RBI’s monetary policy decision due at 10 a.m. IST on Wednesday. Economists polled by Reuters expect the central bank to keep policy rates unchanged even as the rate-setting panel may adopt a slightly more hawkish tone, considering inflation risks down the line.

“The RBI will need to establish a clear hierarchy of risks and respond to evolving outcomes, rather than commit prematurely to a fixed policy path,” economists at BofA Global Research said in a note.

The firm expects the central bank to deliver a “neutral hold” while maintaining its call of 50 bps of hikes in fiscal 2027, starting December.

Elsewhere, Indian equities came under pressure due to heightened volatility from the rollout of a new method to determine closing prices. The benchmark Nifty 50 closed 0.6% lower and bonds rose, with the yield on the 10-year benchmark note drifting a tad lower.

Regional currencies were mixed and global stocks were mostly higher with futures pointing to Wall Street building on the previous session’s gains.

Conflicting signals from the U.S. and Iran over the status of talks to end their five-month-old war boosted uncertainty, lifting Brent oil prices about 1.5% to $85 per barrel.