By Anushka Trivedi
MUMBAI (Reuters) – The Indian rupee held minor gains and forward premiums fell on Thursday after the Reserve Bank of India surprised markets by holding rates, with the local currency posting its third straight weekly advance.
The rupee finished at 81.8850 per dollar, compared with its previous close of 82. It gained about 0.34% in the holiday-shortened week. India’s financial markets will be closed on Good Friday.
The currency recovered from a small dip to 82.0525 immediately after the RBI held its key repo rate at 6.50%, citing risks to growth amid the recent global financial turmoil.
Most analysts had expected a seventh straight and final rate hike, of 25 basis points (bps), at this meeting.
“We see this as a temporary setback for the rupee,” Standard Chartered analysts said in a note.
“Given the improvement in India’s trade balance and broad dollar weakness, we see rising downside risks to USD/INR in the near term.”
The dollar index is trading near two-month lows on expectations that the Federal Reserve is near the end of its monetary tightening campaign after a batch of soft data.
However, the Indian central bank did keep its stance at “withdrawal of accommodation” to remain cautious in the face of elevated core inflation. Governor Shaktikanta Das said the pause was “for this meeting only”.
Das also stressed on maintaining the rupee’s stability and announced a measure to deepen forex markets by proposing to permit banks with IFSC banking units to offer non-deliverable derivative contracts involving the rupee to resident users in the onshore market.
The USD/INR 1-year annualised forward premium yield tumbled to 2.47%, from 2.60% ahead of the policy decision. India’s benchmark bond yield declined 7 bps to 7.2091%. [IN/]
While most markets will be shut on Good Friday, traders will watch out for U.S. non-farm payrolls report due later that day.
(Reporting by Anushka Trivedi; Editing by Savio D’Souza)
