The rupee is worth almost 89.72, traders are cautious as the RBI decision looms

The Indian rupee strengthened in early trading on Friday, extending its recovery above the 90 per dollar mark as traders largely steered clear of targeted bets on the currency ahead of a closely watched policy outcome from the central bank. The rupee stood at 89.7250 at 9:25 AM IST, up 0.3% from its previous close.

The currency had hit an all-time low of 90.42 in the previous session, but a combination of dollar selling from foreign and state-owned banks and the likely reduction in short bets on the currency helped the recovery.While most economists expect the Reserve Bank of India to implement a rate cut when the decision is announced at 10am IST, market participants have halted almost all bets on easing after India reported stronger-than-expected economic growth and the rupee slid past the 90 mark.

Despite the modest recovery, currency consultancy Finrex Treasury Advisors does not expect a trend reversal for the rupee in the near term and recommends exporters to sell cash dollars while importers buy the dips on the dollar.

On the day, likely portfolio inflows and reluctance to bet against the rupee ahead of the RBI decision helped the currency, a trader at a state-run bank said. The RBI policymakers’ commentary on the recent fall in the rupee will also be in focus alongside any measures to support liquidity in the banking system. The decision will not only impact the rupee spot market but is also expected to impact dollar-rupee forward premiums, which have risen sharply in recent sessions.

The 1-year dollar-rupee implied yield last stood at 2.50%, up 29 basis points on the week, while the 1-month forward premium stood at 22 paisa compared to 16.5 paisa at the end of last week.

Elsewhere, 10-year government bond yields were slightly lower at 6.5181%, and the benchmark Nifty 50 index was little changed on the day.