The currency fell 0.6% this week, reversing course after rising more than 1% last week as the central bank stepped in to restore record levels.On Friday, the rupee remained within a narrow range and avoided deeper losses, supported by dollar selling by state-owned banks around 89.90, near the day’s low, traders said.
A few tapers in the NDF market next week could add pressure and push the rupee back below 90.50, a trader at a major private bank said.
“Further gradual depreciation is expected until a favorable trade deal with the US boosts the currency. Even if the INR strengthens, we expect the RBI to take the opportunity to boost its forex reserves,” ANZ analysts said in a note.
India’s foreign exchange reserves stood at nearly $689 billion as of December 12, according to central bank data. Dollar and rupee forward premiums, meanwhile, continued to decline, with the one-year implied yield falling around 10 basis points to 2.74%.
Traders pointed to the rollback of stop-losses on paid positions, which amplified the fall in premiums after the RBI’s announcement of an FX swap allayed concerns about excess dollar liquidity in the system.
In broader markets, Asian currencies were largely range-bound, while the dollar index was near a two-month low and on track for its fourth weekly decline in the past five weeks.
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