The rupee ends flat, as state-owned banks’ dollar sales counteract outflow pressure

The Indian rupee ended little changed on Thursday as pressure was fueled by outflows linked to corporate debt repayments and routine hedging demand from importers was limited by periodic selling of dollars by state-owned banks.The rupee closed at 89.3050 against the US dollar, down marginally from the close of 89.27 in the previous session.

The rupee has stabilized after hitting a record low of 89.49 last week, but traders and analysts say depreciation risks remain amid weak trade and portfolio flows and uncertainty surrounding US-India trade talks.

India’s stock indices, BSE Sensex and Nifty 50, hit record highs on Thursday, but foreign investors have been net sellers of Indian stocks in November and so far this year.

Demand for dollars from importers and aversion to taking long positions on the rupee unless there are concrete developments on a US-India trade deal are likely to continue to weigh on the rupee, a trader at a private bank said.

Asian currencies, meanwhile, traded mixed. The dollar index rose to 99.69 but braced for its worst weekly decline in four months as investors held firm to their bets that the Federal Reserve would cut interest rates next month. Expectations were boosted by dovish comments from Fed policymakers earlier this week, alongside favorable US economic data. The probability of a 25 basis point rate cut currently stands at 85%, up from nearly 40% last week, according to CME’s FedWatch tool.

“We believe this week’s dollar correction has more to do with a convergence towards lower interest rates following the Fed’s accommodative repricing, rather than a geopolitically driven rotation away from safe havens,” ING analysts said.