Rupee to linger near all-time low before Fed rate forecasts
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The Indian rupee is likely to hold near lifetime lows on Wednesday, with traders awaiting the Federal Reserve's projections on how many times it will cut interest rates next year.
The one-month non-deliverable forward indicated that the rupee will mostly unchanged from 84.8950 in the previous session.
The dollar index was little changed on Wednesday, just below 107. Asian currencies were mixed and rangebound.
"Today's FOMC (Federal Open Market Committee) could spark another bout of dollar strength if the Fed ups U.S. inflation projections amid Trump policy uncertainty," Srinivas Puni, managing director at QuantArt Market Solutions, said.
The USD/INR is biased higher unless the Fed unexpectedly provides relief in the form of dovish commentary, he said.
The dollar/rupee pair - boosted by worries over India's growth outlook, the possibility of the Reserve Bank of India (RBI) cutting rates sooner than expected and choppy capital flows - has been on the uptrend in the last several weeks.
With a 25-basis-point (bp) rate cut by the U.S. central bank fully priced in, investor attention will squarely be on the new projections for inflation, the unemployment rate, GDP and interest rates.
In September, the median based on the Fed's dot plot indicated 100 bps of rate cuts in 2025.
In the latest projections, economists reckon policymakers may indicate a more cautious approach to rate reductions amid stickier inflation and President-elect Donald Trump's policies that are likely to boost both growth and inflation.
"The risk of slightly stronger near-term growth with the threat of higher inflation.. means that we expect them to signal only three rate cuts in 2025," ING Bank said.
Nomura said that the dot plot and Fed Chair Jerome Powell’s press conference later in the day "are likely to be hawkish, emphasizing that the pace of rate cuts is likely to slow in 2025".
KEY INDICATORS:
** One-month non-deliverable rupee forward at 85.10; onshore one-month forward premium at 19.50 paise
** Dollar index at 106.94
** Brent crude futures up 0.2% at $73.3 per barrel
** Ten-year U.S. note yield at 4.39%
** As per NSDL data, foreign investors bought a net $22.3 million worth of Indian shares on Dec. 16
** NSDL data shows foreign investors bought a net $107.5 million worth of Indian bonds on Dec. 16
