MUMBAI: The Indian rupee was little changed on Tuesday supported by mild dollar sales from state-run banks, while sustained interbank paying interest helped dollar-rupee far forward premiums hold near a six-month high.
The rupee was nearly flat at 83.73 against the US dollar as of 10:45 a.m. IST, nearly unchanged from Monday’s close at 83.7275.
The currency had declined to an all-time low of 83.74 in the previous session.
Tuesday’s price-action on the rupee will be watched to gauge “what stance the Reserve Bank of India (RBI) holds” on the currency, said Amit Pabari, managing director at FX advisory firm CR Forex.
Traders pointed to mild dollar sales from state-run banks on Tuesday, which helped support the rupee near record low levels, but were unsure if the offers were on behalf of the RBI.
Meanwhile, sustained interbank paying interest has helped lift dollar-rupee forward premiums, with the 1-year implied yield hovering at 1.83% - its highest level since February - and up 19 basis points (bps) over July so far.
The rise in forward premiums comes after the 1-year yield lingered in a 15 bps range in the April-June period, which prompted bankers to scale back on their activities in the market.
Indian rupee to linger near all-time low, pressured by month-end dollar bids
Given the expectation that the Federal Reserve will begin to ease policy rates from September, there has been strong interest in paying December-end premiums, a swap dealer at a state-run bank said.
While the Fed is widely expected to keep rates unchanged on Wednesday, Chair Jerome Powell’s remarks may offer cues on the extent of rate cuts the US central bank may deliver over 2024.
Interest rate futures are currently pricing 66 bps worth of easing over the remainder of the year.
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