Rupee traders eye RBI policy for rate call, possible inflow measures
The Indian rupee is expected to open broadly unchanged on Friday, with its intraday direction tied to the central bank's policy outcome, due shortly, including a potential rate hike and steps to attract dollar inflows.
The rupee is expected to open around Thursday's 95.7850-per-dollar level. The currency traded in a narrow 20-paisa range in the previous session before settling at its weakest level of the day, extending its losing streak to a third session.
All eyes are now on the Reserve Bank of India’s policy decision, due at 10:00 am IST. While most economists expect the RBI to keep rates on hold, views among currency traders are far more divided.
About 80% of economists polled by Reuters expect the central bank to leave the policy rate unchanged, while traders see it closer to a coin toss.
An immediate reaction is expected to the rate decision, with a hike likely to draw a bigger response than a status quo, a currency trader at a private sector bank said.
More crucial, however, will be any measures to attract dollar inflows, without which the rupee’s near-term outlook remains challenging, he added.
There have been several reports in recent weeks about potential measures to boost dollar inflows. The latest indicates that India may scrap capital gains tax on foreign portfolio investments in government securities, a move that could help attract such flows.
Expectations of measures to boost dollar inflows come against a backdrop of mounting external pressures. Economists warn that persistently high oil prices could widen the current account deficit at a time when portfolio flows are expected to remain weak.
Meanwhile, cues from Asia were largely negative for the rupee, with most regional currencies down on the day and risk appetite subdued. Markets remained cautious amid worries over a flare-up in Middle East tensions, with U.S.-Iran talks still in limbo.
