Informist, Wednesday, May 4, 2022
By Pratiksha and Srijonee Bhattacharjee
NEW DELHI – The Indian rupee trimmed its gains against the dollar as importers purchased the greenback, dealers said. The Indian currency rose sharply today after the Reserve Bank of India Governor Shaktikanta Das announced a surprise 40 basis points increase in repo rate following an off-cyclical policy meeting, dealers said.
After touching a high of 76.2500 a dollar during the day, the rupee settled at 76.4125 a dollar today.
The rupee opened about 7 paise higher at 76.4500 a dollar against Monday’s closing level of 76.5150 a dollar. Shortly after, the local currency inched up to 76.3975 a dollar as some banks sold dollars for investment by overseas investors in the initial public offering of Life Insurance Corp of India, dealers said. Financial markets were closed on Tuesday on account of Ramzan Id-ul-Fitr.
The initial public offering of LIC opened for subscription today and will close on Monday. The price band for offer is set at 902-949 rupees per share, while the issue size is 210-220 bln rupees.
The rupee gradually erased its gains and fell to the day’s low of 76.5700 a dollar, tracking a sharp slump in domestic share indices, dealers said.
However, the local unit then traded in a narrow range of 76.54-76.45 a dollar for a duration of almost two hours, as investors stayed cautious ahead of a statement by the Reserve Bank of India Governor Shaktikanta Das, scheduled at 1400 IST, earlier today.
Later, the rupee moved to 76.3700 a dollar level as some foreign banks, including a US-based bank, stepped in to sell the greenback for overseas investment into LIC’s initial public offer, dealers said.
The rupee, thus, received a further boost and rose to the day’s high of 76.2500 a dollar after Reserve Bank of India Governor Shaktikanta Das announced an increase in repo rate by 40 bps, dealers said.
“Of course, the announcement came as a surprise to the market. The rupee broke the crucial 76.30 (a dollar) level, after which stop losses of some banks were triggered,” a dealer with a state-owned bank said. “I think the rupee should continue an upward trend from here. The FOMC (Federal Open Market Committee) outcome shouldn’t be that much of a dampener now.”
Das said the Monetary Policy Committee voted unanimously to increase repo rate by 40 bps to 4.40% with immediate effect in an off-cycle meet on May 2-4.
Interest rate hikes improve the prospects for the domestic currency as domestic bonds attract more foreign investor interest.
With the hike in the repo rate, the standing deposit facility gets adjusted to 4.15%, while the marginal standing facility rises to 4.65%. The RBI also hiked the cash reserve ratio by 50 bps to 4.5% of net demand and time liabilities, effective from midnight of May 21.
The rupee gradually erased most of its gains and closed at 76.4125 a dollar, as some banks persistently purchased dollars on behalf of importers who wanted to take advantage of lower dollar/rupee levels of around 76.25-76.30 a dollar, according to dealers. Importers bought the greenback after the crucial resistance level of 76.25 a dollar held.
“There was some corporate buying at that level, especially since the resistance level held,” a dealer with another state-owned bank said.
Moreover, domestic share indices slumped after Das’ announcement, which also dampened sentiment for the Indian unit, dealers said. Both the Nifty 50 and Sensex ended 2.3% lower each.
Meanwhile, the dollar index edged lower today as investors evaluated how much of the US Federal Reserve’s expected move to hike rates today and beyond was already priced in. This provided support to the rupee, dealers said.
The dollar index, which measures strength in the US currency against a basket of six major currencies, hit a 20-year high last week on expectations the US central bank will be more aggressive than peers in tightening policy, with inflation running at its fastest pace in 40 years.
The Fed is expected to raise interest rates by 50 basis points and announce plans to reduce its $9-trln balance sheet when it concludes its two-day meeting later today.
At 1650 IST, the dollar index was at 103.37, against 103.46 on Tuesday. It was at 103.74 on Monday.
Premiums on dollar/rupee forwards surged because the rate hike announcement led traders to cut excessive short forward dollar positions placed over weeks, dealers said.
The premium on the one-year, exact-period dollar/rupee contract was at 316.25 paise, against 285.25 paise on Monday. On an annualised basis, the premium breached the 4% mark and was at 4.12%, against the previous close of 3.73%.
Market participants had placed heavy short bets on forward dollars till the last monetary policy Apr 6-8 on the expectation that the interest rate differential between India and the US may narrow, given aggressive rate hike projections by the US fed and a stable rate outlook by the RBI. Some of those expectations had been pacified when the central bank spoke about beginning a withdrawal from the accommodative stance at the Apr policy announcement. However, a 40 basis-point hike in the repo rate along with a CRR hike of 50 bps (sucking out liquidity) at an off-cyclical policy held so close after the last policy caught the market off-guard and led market participants to cut their short bets in a big way.
The hike by the domestic central bank, right before the Fed’s meeting later today where it is seen hiking rates by 50 bps meant that the interest rate differential between India and US will not narrow as much as the market had expected and hence the jump in premiums. Premiums on forwards of a currency pair mirrors the interest rate differential between the two countries.
“Cutting (of received positions in forward dollar/rupee) is not complete, we might see that for another day,” a dealer with the state-owned bank said. “The one-year premium will rise and now stabilise in the range of 3.90%-4.20%.”
Traders had begun cutting short positions being cautious, on the news that the Reserve Bank of India Governor was scheduled to speak at 1400 IST. After Governor Das’ announcement, the rise in the premiums just got sharper.
The Fed is seen hiking its benchmark interest rate by 50 basis points today, along with an aggressive cutback of its massive balance sheet to curb surging inflation in the US. While the quantum of the hike has been factored in by the market, the central bank’s commentary for future trajectory will be key. If the commentary is less aggressive than expected, premiums on one-year dollar/rupee contract may continue to rise uninhibitedly towards 4.20% on Thursday.
On Thursday, the rupee will take cues from overnight movement in the dollar index after the outcome of the US Federal Open Market Committee’s meeting, due later today.
The local unit will also take cues from movement in crude oil prices amid the Russia-Ukraine conflict, said dealers.
Foreign and private banks are expected to sell dollars for investment by overseas funds into the public offer of LIC, dealers said.
Dealers have now pegged strong key technical resistance at 76.20 a dollar.
During the day, the rupee is seen in the range of 76.2000-76.7000 a dollar.
India Rupee:Rises more as MPC increases repo rate by 40 bps to 4.40%
NEW DELHI – The rupee rose further against the greenback after Reserve Bank of India Governor Shaktikanta Das announced an increase of repo rate by 40 bps today, dealers said.
Das said the Monetary Policy Committee voted unanimously to increase repo rate by 40 bps to 4.40% with immediate effect, in an off-cycle meet on May 2 and May 4.
Meanwhile, domestic share indices slumped after Das’ announcement, which weighed down the Indian unit, dealers said. At 1455 IST, the Nifty 50 and the Sensex fell 2.6% and 2.5%, respectively.
The Indian currency rose to the day’s high of 76.2500 a dollar today.
The rupee is seen within the range of 76.2000-76.6000 a dollar for the rest of the day. (Pratiksha)
India Rupee: Premium up; banks cut short forward dollar bets before RBI speech
MUMBAI – Premiums on dollar/rupee forwards rose sharply because traders covered some short forward dollars placed earlier ahead of Reserve Bank of India Governor Shaktikanta Das’s speech due at 1400 IST, dealers said.
The premium on the one-year, exact-period dollar/rupee contract was at 293.07 paise, against 285.25 paise on Monday. On an annualised basis, the premium was at 3.81%, against the previous close of 3.73%.
The Reserve Bank of India’s announcement on Das’ statement, which came only a few hours in advance, caught the market by surprise and led traders to cover short bets on forward dollars on expectation that the central bank may announce measures to tighten monetary policy, ahead of the outcome of the US Federal Open Market Committee meet today, dealers said. Any increase in rates in India would lead to a rise in forward premium on the dollar/rupee as it would mean that the differential between India and US rates is not going to narrow as much as market participants had earlier expected.
The Fed is seen hiking its benchmark interest rate by 50 basis points today, along with an aggressive cutback of its massive balance sheet to curb surging inflation in the US.
While some traders in the foreign exchange market are expecting a pre-emptive move by the Indian central bank, others who do not expect a move on Indian rates before the Fed policy are just covering excessive short positions built on forwards before in caution. The premium on one-year contract had falling significantly on Monday.
“If he (Das) has to hike he will do so after Fed increases because as of now we are assuming that they may go for a 50-basis-point hike, no one is sure,” a dealer with a state-owned bank said. “What will he (Das) do if the Fed doesn’t increase tonight. He (Das) may talk about the economy or come up with some measures like import curbs on gold…but I am not expecting a hike right now when the Fed in due to speak tonight.” (Srijonee Bhattacharjee)
India Rupee: Erases gains as local shares slump; US FOMC meet eyed
NEW DELHI – The rupee erased earlier gains and fell against the greenback as domestic share indices fell sharply today, dealers said.
At 1120 IST, the Nifty 50 and the Sensex fell 0.8% and 0.7%, respectively.
Meanwhile, investors were cautious ahead of the conclusion of the US Federal Open Market Committee’s two-day meeting later today, which further weighed on sentiment for the Indian unit, dealers said.
The US Federal Reserve is expected to raise interest rates by 50 basis points and announce plans to reduce its $9-trln balance sheet.
At 1120 IST, the dollar index, which measures strength in the US currency against a basket of six major currencies, was at 103.55, against 103.46 on Tuesday. It was at 103.74 on Monday.
The rupee is seen at 76.3000-76.7000 a dollar for the rest of the day. (Pratiksha)
India Rupee – Asia FX: Mixed ahead of US FOMC meeting outcome
MUMBAI – Asian currencies moved on a mixed note against the US dollar today ahead of the US Federal Open Market Committee’s policy decision due later today.
Market participants are expecting the US central bank to accelerate its tightening of monetary policy to curb a 40-year high inflation.
The US Federal Open market Committee is widely expected to raise rates by half a percentage point this week, and 50-75 bps each in the next two meetings.
Movement in most Asian currencies was limited due to low volumes as markets in Japan and mainland China were closed today for a holiday.
South Korean won gained 0.4% today after consumer inflation hit a more than 13-year high in April, boosting expectation of more interest rate hikes by the central bank this year. (Richard Fargose)
India Rupee: Rises on inflows for LIC IPO; US Fed meet outcome eyed
NEW DELHI – The rupee rose against the dollar today because foreign banks sold dollars for overseas investments into the initial public offering of Life Insurance Corp of India, dealers said.
The issue will open today and will close on Monday. The price band for the initial public offering is set at 902-949 rupees per share, while the issue size is 210-220 bln rupees.
The dollar remained elevated against a basket of currencies ahead of the conclusion of the US Federal Open Market Committee’s two-day meeting, later today. This weighed on the Indian unit, dealers said.
The US Federal Reserve is expected to raise interest rates by 50 basis points and announce plans to reduce its $9-trln balance sheet later today.
At 0940 IST, the dollar index was at 103.52, against 103.46 on Tuesday. It was at 103.74 on Monday.
“It’s an upward trend for the rupee today. We are expecting considerable selling (of dollars) for the LIC IPO,” said a dealer with a state-owned bank. “The 76.30 (a dollar) level will be crucial, if it breaks we might see some more appreciation.”
Dealers have now pegged key technical resistance for the rupee at 76.30 a dollar.
The rupee is seen at 76.3000-76.7000 a dollar for the rest of the day. (Pratiksha)
India Rupee: Expected range for rupee – May 4
NEW DELHI – The following are the expected support and resistance levels for the rupee, as forecasted by leading banks and brokerages in an Informist poll:
(Pratiksha and Richard Fargose)
IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT
Edited by Deepshikha Bhardwaj
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