Rupee steadies near 96/$ as outflows weigh, RBI intervention cushions

The Indian rupee held near the 96 per dollar mark on Wednesday as dollar demand driven by ​foreign portfolio outflows weighed on the currency while central bank ​intervention provided support.

The rupee was at 95.97 per dollar at 11:30 ‌a.m. IST in Mumbai, little changed from its close at 95.98 in the previous session. The currency was on course for a 0.8% monthly fall and a 1.3% quarterly decline.

State-run banks stepped in to sell dollars after the local spot market opened, as seen over the last two weeks, traders said.

Persistent intervention by the Reserve Bank of India, drawings on its larger foreign exchange reserves, have helped anchor the rupee against headwinds ranging from elevated oil prices, surging global bond yields and foreign selling ‌of Indian stocks.

 

On Tuesday, overseas investors sold shares worth 99.8 billion rupees ($1.04 billion) on a net basis marking their biggest outflow in about four months.

That pressure, alongside routine dollar demand, overwhelmed supportive global factors such as modestly lower oil prices and a pullback in bets on imminent rate hikes by the Federal Reserve.

Fed policymakers probably only need to deliver one more rate hike ​this year to get inflation back on track, New York Fed President John Williams said ‌on Tuesday. Markets had priced about 50 basis points of rate increases before the remarks.

Since then, the odds of an October hike have ​cooled to ‌just under 50% while signs of improving energy supply from the Middle East have ‌helped cool oil prices even though they remained above $100 per barrel.

"We think sustained relief from US rate and dollar pressure will require not only ‌further ​evidence of labour-market ​moderation, but also clearer signs that inflation is easing," MUFG said in a note.

Focus will now turn to the release of US personal ‌consumption expenditure inflation ​data and remarks from Fed policymakers.