Rupee remains stable, volatility expectations drop as RBI maintains grip

The Indian rupee was nearly flat on Tuesday, with traders expecting the currency to largely move sideways as the Reserve Bank of India continued to hurdle sharp declines that also helped cool near-term volatility expectations.

The rupee was at 83.4975 against the US dollar as of 09:50 a.m. IST, barely changed from its previous close at 83.5050.

The rupee remained in a narrow band on Monday, with likely intervention from the RBI limiting weakness in the currency, traders said.

The central bank's interventions have also helped drive down the dollar-rupee pair's near-term volatility expectations.

The 1-month implied volatility has declined to 2.20 per cent, down from a 6-month peak of 3.35 per cent at the end of May in the lead-up to India's national election outcome on June 4.

Don't think the rupee will move "much below 83.50" as dollar sale offers from state-run banks, likely on behalf of RBI, continued to linger, a foreign exchange trader at a foreign bank said.

The dollar index was at 105.1, while most Asian currencies slipped in the lead-up to the closely watched US inflation data and the Federal Reserve policy decision due on Wednesday.

While the US central bank is widely expected to keep policy rates unchanged, investors will pay attention to Fed Chair Powell's commentary and any updates to the interest rate dot plot.

Interest rate futures are currently pricing in about 38 basis points of rate cuts over 2024, down from nearly 50 last week.

Price action on the rupee is likely to be similar to the previous session with a "close watch on the RBI and the 83.50 level", said Anil Bhansali, head of treasury at Finrex Treasury Advisors.