Rupee edges higher on inflows, importer dollar demand caps gains

The rupee strengthened marginally on Thursday on modest inflows from a bond issue, but importer demand for dollars and foreign outflows kept gains limited ahead of the RBI's policy decision

The rupee edged higher on Thursday due to modest inflow on the back of Muthoot Finance fund raise, however, importer demand for dollar capped gains.

 

The local currency appreciated up to 90.07 per dollar during the day, however, it gave up some gains by the end of the trade to settle at 90.36 per dollar, against the previous close of 90.42 per dollar.

 

“The initial appreciation was because of inflow of Muthoot Finance, but FII outflow kept rupee under pressure,” said a dealer at a state-owned bank. “There was no intervention seen by the RBI (Reserve Bank of India),” he added.

 

Muthoot Finance raised $600 million via overseas bond issue.

 

After witnessing sharp appreciation after the trade-deal announcement, the local currency remains torn between optimism and caution as the market awaits the fine print of the trade deal.

 

The rupee has depreciated by 5.41 per cent against the dollar in the current financial year, whereas, it has witnessed 0.5 per cent depreciation in the current calendar year so far.

 

“There has been a perceptible change in the perception of rupee since the US-India deal was announced by US President Donald Trump, and while a joint statement is likely to be announced in five days, we may see more gains for the rupee in the coming days,” said Anil Kumar Bhansali, head of treasury and executive director, Finrex Treasury Advisors LLP.

 

Traders are now eying RBI’s Monetary Policy Committee (MPC) meeting outcome on Friday for cues. The six-member committee is expected to maintain a status quo at the monetary policy meeting.

 

Meanwhile, the banking system’s liquidity stayed in surplus mode, which was to the tune of ₹1.94 trillion on the back of government spending.

 

“With the initial support from OMO (open market operations) and swaps, the government spending led to the rise in liquidity,” said the treasury head at a private bank. “They might announce further measures at the MPC to keep liquidity comfortable for transmission,” he added.

 

The central bank has been conducting OMO purchase along with buy/sell swaps and long-term variable rate repo auctions in order to infuse durable liquidity in the banking system.

 

The central bank might conduct additional ₹1 trillion worth of OMO to lift banking system liquidity to around 0.9 per cent of net demand and time liabilities (NDTL) by March-end, in line with the RBI’s indicated comfort range of roughly 0.6 per cent to 1 per cent of NDTL.