Rupee eyes RBI monetary policy decision, US inflation data to follow

The Indian rupee's direction on Thursday will be impacted by the central bank's policy decision and how market participants want to position themselves before U.S. inflation data.

Non-deliverable forwards indicate the rupee will open barely changed to the U.S. dollar from 82.8150 on Wednesday. In the last two sessions, the currency has been in the range of around six paisa.

The Reserve Bank of India (RBI) has possibly been selling dollars to prevent the rupee from weakening below what is regarded a highly important level, according to traders.

"It is obvious that there is unwillingness to take USD/INR higher and the downside anyway looks capped," a forex trader at a Mumbai-based bank said.

"With two major events lined up, the question is whether 83 is vulnerable. U.S. inflation, according to me, is more vital for the rupee than the RBI."

The RBI, at 10.00 a.m. IST, is not expected take any rate action, though the decision is now seen less of a formality in the wake of a jump in food prices.

The key change to watch for would be the RBI's assessment on a spike in food inflation and any potential revision to the current fiscal inflation projections, IDFC First Bank said in a note.

An unexpected rate hike by the RBI will "provide a boost to the rupee, which will not last long" and push USD/INR premiums higher, the forex trader said.

Later in the day, U.S. inflation data is expected to show that core prices rose by 0.2% month-on-month and by 4.8% on-year, according to a poll conducted by Reuters.

Investors are assigning a 15% probability of a rate hike by the U.S. Federal Reserve at its September meeting.

"In-line or lower inflation figures would probably be sufficient to lower the odds of a September hike near to zero," DBS Research said in a note.