MUMBAI, June 5 (Reuters) – The Indian rupee will rely on the central bank stepping in to defend the currency on Wednesday, amid likely foreign portfolio outflows following the unexpected outcome of the country’s general election.
Non-deliverable forwards indicate the rupee will open largely unchanged from 83.53 in the previous session. The rupee is not too far from the all-time low of 83.5750 hit in April.
The rupee’s losses would have been larger if not for the Reserve Bank of India, which likely sold dollars near 83.50. It is expected to continue to do so in the coming days, traders say.
The rupee’s volatility will likely be “smoothed for now, but medium-term questions have surfaced”, HSBC Bank said in a note.
“Beyond the immediate risk of portfolio outflows and carry trade unwinds from the election uncertainty, we see potential medium-term implications from the election result,” said Pranjul Bhandari, chief India and Indonesia economist at HSBC.
The trend of more moderate INR NEER (Nominal Effective Exchange Rate) depreciation in recent years may not continue if there are changes to the structural reform agenda and the RBI may be more determined to build up large FX reserve buffers, she said.
The rupee’s Asian peers were mostly higher on the day amid the increasing likelihood that the Federal Reserve will cut rates in September.
KEY INDICATORS:
** One-month non-deliverable rupee forward at 83.60; onshore one-month forward premium at 7.5 paisa
** Dollar index down at 104.12
** Brent crude futures up 0.1% at $77.6 per barrel
** Ten-year U.S. note yield at 4.34%
** As per NSDL data, foreign investors bought a net $824.3 million worth of Indian shares on June 3
** NSDL data shows foreign investors bought a net $272.6 million worth of Indian bonds on June 3
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Reporting by Nimesh Vora; Editing by Savio D’Souza
Our Standards: The Thomson Reuters Trust Principles.
