By COMFORT OGBONNA
The Indian rupee edged lower against the U.S. dollar on Thursday as the Reserve Bank of India continued to intervene in the foreign-exchange market, helping keep the currency within a narrow trading range despite pressure from maturing forward contracts and debt-related outflows.
The rupee was trading at around 95.36 per dollar, slightly weaker than its previous close. During the session, the currency moved within a range of just about one paisa, reflecting subdued trading activity and limited direction from global markets.
Traders said state-owned banks were repeatedly seen offering dollars in the market as demand from banks and companies remained elevated. The intervention helped prevent sharper movements in the rupee as the central bank sought to maintain stability in the currency.
Market activity remained restrained after Indian and U.S. inflation data released Wednesday largely matched economists’ expectations. The absence of a major surprise from the inflation figures left investors with few immediate reasons to make large bets on the direction of the rupee.
Oil prices were also hovering close to $90 a barrel, adding another source of uncertainty for India’s currency and economy. India is heavily dependent on imported crude oil, making higher energy prices a potential source of pressure on the country’s trade balance and inflation.
“For speculators, there is little to do except exit positions at narrow profits or losses,” a Mumbai-based bank trader said.
Forward premiums on the rupee were also slightly lower. The one-year forward implied yield declined by three basis points to about 2.74%, reflecting expectations about interest-rate differentials and future currency movements.
Indian government bond yields edged lower as investors assessed the latest inflation figures and their implications for monetary policy.
The inflation data is expected to strengthen expectations that the Reserve Bank of India will leave interest rates unchanged for now. Policymakers have been balancing the need to support economic growth with concerns that inflationary pressures could become broader as domestic demand remains firm.
Analysts said India’s relatively strong domestic demand, faster credit growth and supportive fiscal conditions could contribute to wider inflationary pressures in the months ahead.
The outlook for the rupee is also being shaped by global monetary policy. Asian currencies and regional stock markets gained after U.S. inflation data reduced expectations of an imminent Federal Reserve rate increase.
Indian equities moved in the opposite direction, however, with the benchmark Nifty 50 index falling about 0.4%.
Investors are also closely monitoring developments in the Gulf, particularly the ongoing dispute between Iran and the United States and efforts to reach an agreement that could bring an end to the conflict.
Negotiations aimed at reviving an earlier interim agreement have made little progress, keeping markets alert to the possibility of further disruption in the region.
Any prolonged conflict or disruption to energy supplies could push oil prices higher and place additional pressure on countries such as India that rely heavily on imported crude.
For the rupee, continued central bank intervention could help limit short-term volatility, but traders remain cautious about the potential impact of oil prices, capital outflows, global interest rates and geopolitical developments.
With major inflation figures largely in line with expectations, investors are likely to focus on developments in global monetary policy and energy markets for fresh direction.
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