The Indian rupee strengthened on Friday, tracking a rise in most regional peers that were boosted by a softer U.S. dollar, while traders await the Reserve Bank of India’s (RBI) monetary policy decision.
The rupee was up about 0.1% at 84.6550 as of 09:30 a.m. IST compared with its close of 84.7325 on Thursday. The RBI will deliver its policy decision at 10:00 a.m. IST.
Analysts expect the central back to deliver some degree of policy easing via a reduction in banks’ cash reserve ratios (CRR) after India’s economic growth slowed to a seven-quarter low in the July-September quarter, even as still-high inflation may make it reluctant to cut interest rates just yet.
Traders reckon that a surprise rate cut from the RBI or more dovish-than-expected policy commentary could hurt the rupee and push it to a fresh record low after the currency hit a lifetime low of 84.7575 earlier this week.
The central bank’s policy decision will be also be key for dollar-rupee forward premiums, traders said.
The one-year dollar-rupee implied yield has declined 25 basis points so far in December, pegged by expectations of policy easing and the central bank’s recently conducted dollar-rupee buy/sell swaps.
“The rupee could gain support from the RBI’s efforts to manage liquidity in the banking system,” Amit Pabari, managing director at FX advisory firm CR Forex said, adding that he expects potential downside for the rupee to be capped at 85.
Asian currencies were mostly higher by about 0.1% on the day, while the dollar index last quoted at 105.8 after declining 0.5% on Thursday ahead of closely watched U.S. labour market data, due later on Friday.
Economists polled by Reuters expect the U.S. economy to have created 200,000 jobs in November, while the unemployment rate likely rose to 4.2% from 4.1% in the previous month.
