MUMBAI: The Indian rupee ended little changed on Friday as dollar demand from state-run banks offset the impact of likely inflows into local equities.

The rupee closed at 83.8625 against the US dollar, nearly flat compared to its close at 83.87 in the previous session.

While most Asian currencies rallied between 2% to 6% in August, the rupee weakened 0.2% to log its second consecutive monthly decline.

The currency touched its record low of 83.9725 and remained under pressure through most of the month due to the unwinding of yuan-funded long bets on the rupee, tepid equity inflows and strong dollar demand from local importers.

On Friday, though, the rupee found some support from likely dollar inflows but its gains were capped by strong dollar demand from state-run banks, traders said.

A higher weightage for Indian equities in MSCI’s emerging market equity index, effective on Friday, was expected to draw up to $3 billion of inflows, according to Nuvama Alternative and Quantitative Research.

The dollar index was little changed at 101.3 ahead of the release of US personal consumption expenditure (PCE) inflation data.

With a rate cut by the Federal Reserve fully priced in for the September meeting, the inflation data will help investors gauge the pace and extent of policy easing the central bank may deliver this year.

Investors are currently pricing in 100 bps of rate cuts over 2024.

For the rupee, the “bias is slightly on the positive side,” but the currency is unlikely to rise above 83.70 in the near term, Dilip Parmar, a foreign exchange research analyst at HDFC Securities said.

Likely absorption of dollar inflows by the central bank, alongside local dollar demand, is expected to keep a lid on the currency’s gains, Parmar said.