The Indian rupee strengthened during Friday's morning session, building on its recovery to trade firmly above the 90 per US dollar mark. Market participants adopted a cautious stance, refraining from major directional bets as they awaited the outcome of the Reserve Bank of India's monetary policy meeting.
Rupee Recovers from Record Low
As of 09:25 a.m. IST, the rupee was quoted at 89.7250 against the dollar, marking a gain of 0.3% from its previous close. This upward move comes after the currency touched an all-time low of 90.42 in the previous trading session. The recovery was supported by a combination of dollar sales from foreign and state-run banks, along with traders likely covering their short positions on the rupee.
All Eyes on the RBI's Decision
The central bank's policy announcement, scheduled for 10:00 a.m. IST, is the day's key event. While a section of economists anticipates a rate cut, market participants have significantly scaled back their easing expectations. This shift follows India's report of stronger-than-expected economic growth and the rupee's breach of the psychologically significant 90 level.
A trader from a state-run bank noted that potential portfolio inflows and a general reluctance to bet against the rupee ahead of the RBI announcement provided additional support to the local currency.
Market Outlook and Forward Premiums
Despite the morning's gains, advisory firm Finrex Treasury Advisors does not foresee a near-term trend reversal for the rupee. The firm is advising exporters to sell cash dollars and importers to purchase the US currency on dips.
The RBI's decision is also expected to influence the dollar-rupee forward premiums, which have risen sharply in recent sessions. The 1-year implied yield was last at 2.50%, up 29 basis points for the week. Meanwhile, the 1-month forward premium stood at 22 paisa, compared to 16.5 paisa at the end of the previous week.
Beyond the rate decision itself, investors will closely scrutinize the policymakers' commentary on the rupee's recent depreciation and any potential measures to support banking system liquidity.
In related markets, the 10-year government bond yield was slightly lower at 6.5181%, and the benchmark Nifty 50 stock index showed little change in early trade.
