The Indian rupee rose for a
third consecutive session on Wednesday to hit a more than
one-month peak as the central bank followed up tough regulatory
measures with hawkish commentary.
However, the gains were capped below the 95 per dollar mark
as dollar demand linked to importer hedging and portfolio
outflows persisted. The rupee climbed to a peak of 94.77 in
early trading before settling 0.1% higher at 95.15.
“A durable turnaround in the currency will also require
negative global triggers to subside. The latest announcements
may not fully quell speculation over further policy action,” DBS
said in a note.
“Should depreciation pressures intensify again, markets are
likely to price a higher probability of a front-loaded and more
aggressive rate-hike cycle.”
Reserve Bank of India Governor Sanjay Malhotra has defended
India’s recent forex curbs as an effort to discourage
speculative bets and said the central bank is ready to take
additional steps to ensure orderly rupee movement.
He added that while monetary policy is not typically
deployed to address financial stability concerns, the two cannot
be entirely separated.
Traders interpreted the remarks as a signal of limited
tolerance to further rupee weakness.
The South Asian currency had declined over 7% year-to-date
before fresh measures over the weekend and has risen 2% this
week.
Rupee swap markets are currently pricing in nearly 100 bps
of rate hikes over the next 12 months.
Indian importers continue to lock in future dollar purchase
rates to protect against the rupee weakening, despite the banks
charging more following the central bank’s steps.
Investors await US consumer inflation data, due later in the
day, for cues on the future path of interest rates in the
world’s largest economy. The dollar index was last at
102.2.