The Indian rupee surged 67 paise to open at a two-month high of ₹94.30 against the US dollar on Thursday, September 3, after the Reserve Bank of India’s latest foreign-currency mobilisation far exceeded market expectations, strengthening the central bank’s ability to support the domestic currency.
The RBI said on Wednesday that India mobilised $136.38 billion through special foreign-currency schemes, significantly surpassing expectations. The inflows are expected to bolster the country’s foreign exchange reserves and give the central bank greater room to contain pressure on the rupee.
Non-resident deposits accounted for the bulk of the mobilisation, contributing around $127 billion. A further $3.89 billion was raised through external commercial borrowings, while overseas foreign-currency borrowings brought in another $5.26 billion, according to the RBI.
The rupee is expected to find further support from gains in Asian currencies and a retreat in the dollar index, which has fallen below 99.50, Reuters reported. The dollar’s decline has been largely driven by a strengthening Japanese yen.
According to the Reuters report, investors are now turning their attention to upcoming US economic data and comments from Federal Reserve officials for indications of the central bank’s policy direction and the likelihood of a rate hike this month.
Markets have raised their expectations of a Fed rate increase, with traders now pricing in roughly a two-in-three probability of a 25-basis-point hike this month, compared with 37% a week earlier, according to CME Group’s FedWatch tool, Reuters reported.
(more to come)