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Informist, Friday, Dec. 6, 2024

By Sourabh Kumar

MUMBAI – The rupee ended slightly higher against the dollar on Friday, aided by the Reserve Bank of India's announcement to increase the interest rate ceilings on Foreign Currency Non-Resident Accounts (Banks) deposits, dealers said. 

"I enjoyed a lot today," a dealer with a foreign bank said, referring to trading positions he took due to movement in the dollar/rupee pair. "It rose past 60 level (84.60 a dollar) after (RBI Governor Shaktikanta) Das announced FCNR measures, and then importers came to purchase dollars."

After moving in a range of nearly 13 paise, the rupee settled at 84.6875 a dollar compared with 84.7325 a dollar on Thursday. In the morning, the Indian currency opened higher at 84.6475 a dollar, mainly due to a fall in the dollar index, dealers said. The overall volumes in the foreign exchange market were low before the announcement of the outcome of the RBI Monetary Policy Committee meeting, they said.

The rupee was steady until Das announced the increase in the interest rate ceilings on Foreign Currency Non-Resident Accounts (Banks) deposits from one year to five years by 150 basis points. The RBI allowed banks to raise fresh FCNR(B) deposits between 1 year and less than 3 years at rates not exceeding the overnight alternative reference rate plus 400 bps compared with 250 bps earlier. The ceiling for deposits of 3 to 5 years was increased to the overnight alternative reference rate plus 500 bps against 350 bps earlier. The relaxation in ceiling will be available till March 31.

"I think they have announced that measure to shore up some reserves," a dealer with a foreign bank said. "They have been selling (dollars) a lot recently to support the rupee. Plus, the downward move in dollar/rupee was more sentimental than anything right now."

The rupee also received support from a relatively weak dollar index, dealers said. The dollar index, which fell after Indian market hours on Thursday, was steady on Friday ahead of the release of the US unemployment report, due later in the day. Non-farm payrolls in the US are likely to have risen by 200,000 in November after an increase of 12,000 in October, according to a Reuters survey. The unemployment rate is expected to have risen to 4.2% from 4.1% in October.

At 1530 IST, the dollar index, which measures the strength in the greenback against a basket of six major currencies, was at 105.80 against 105.73 on Thursday and 106.36 on Wednesday. 

With such support, the rupee touched a week's high of 84.5700 a dollar, before importers, including oil marketing companies, took advantage of such levels and started purchasing the greenback. The dollar buys erased most of the gains in the Indian currency, dealers said. Oil marketing companies also bought the greenback, noting a fall in crude oil prices, dealers said. At 1530 IST, the February Brent crude oil contract on the Intercontinental Exchange was at $71.58 per barrel, against its close of $72.09 per barrel on Thursday and $72.31 per barrel on Wednesday.

Crude oil prices fell on demand concerns amid a good supply outlook for 2025. Traders also assessed the decision of the Organization of the Petroleum Exporting Countries and allies to further postpone the unwinding of oil output cuts by at least three months, with the full unwinding by 2026. The decision was made due to a gloomy demand outlook and rising oil production in countries not part of the oil group.

On a weekly basis, the rupee has ended around 20 paise lower from the close of 84.4825 last Friday. Detailing the MPC decision, Das said the Indian rupee depreciated by 1.3% in Apr-Nov, largely due to pressure from the strengthening US dollar and selling pressure by foreign portfolio investors in October and November. The dollar index had hit over a two-year high of 108.07 on Nov. 22.

October and November saw a net outflow in foreign portfolio investments from Indian markets, especially equities. Even though outflows from Indian equities continued in November, the quantum reduced to $2.16 billion from October's $10.94 billion outflows. 

To prevent the rupee from a sharp depreciation, the central bank has, time and again, intervened in the foreign exchange market by way of dollar sales, dealers said. They said it was one of the primary reasons for the depletion in foreign exchange reserves. India's foreign exchange reserves fell to a near five-month low of $656.58 billion in the week ended Nov. 22. From the record high of $704.89 billion late in September, it declined by over $48 billion.

However, at the post-policy conference, Das said a good part of the depletion in reserves was owing to valuation losses, with the current amount of reserves "quite adequate".

In his statement, Das said, "foreign exchange reserves are deployed judiciously to mitigate undue volatility, maintain market confidence, anchor expectations and preserve overall financial stability. These interventions focus on smoothening excessive and disruptive volatility rather than targeting any specific exchange rate level or band."

FORWARDS

Premiums on the dollar/rupee forward contract ended higher across tenors after the Reserve Bank of India raised the interest rate ceilings on Foreign Currency Non-Resident Accounts (Banks) deposits. With the upward revision in the rate ceiling on FCNR(B) deposits, the dollar liquidity in the system is also expected to rise, which boosted forward premiums, dealers said.

The RBI also cut the cash reserve ratio of banks by 50 basis points to 4.00%. As the market had already factored in the cut, it did not impact forward premiums, dealers said. Ideally, with more liquidity, forward premiums should go down. The cut in the CRR is likely to release INR 1.16 trillion into the banking system.

At 1530 IST, the premium on the one-year exact-period dollar/rupee forward contract was 175.50 paise, against 166.80 paise on Thursday. On an annualised basis, the premium was at 2.07% against Thursday's close of 1.97%.

OUTLOOK

The market is closed on Saturday. On Monday, the rupee will take cues from the movement of the dollar index and crude oil prices. Investors will take into account the US employment report, due later in the day.

The local unit will also take cues from movement in the offshore Chinese yuan, they said. The RBI is likely to intervene through dollar sales, if the rupee falls sharply, they said.

Dealers expect importers to continue purchasing dollars in fear of a further depreciation in the rupee, which may pressure the Indian currency, dealers said. The rupee is seen in a range of 84.60-84.85 a dollar, with strong technical support pegged at 84.80 a dollar.

India Rupee - World FX:Dollar steady ahead of US non-farm payrolls; yen down

India Rupee - World FX: Dollar steady ahead of US non-farm payrolls; yen down

MUMBAI – The dollar index was steady on Friday ahead of the release of US non-farm payrolls data later in the day. On Thursday, the greenback had fallen sharply as the euro surged after French far-right National Rally member Marine Le Pen said a budget could be passed within a few weeks. The euro carries 57.6% weightage in the dollar index. On Friday, the euro was largely unchanged against the dollar. 

Investors also assessed a few data points released on Thursday, while waiting for the US employment report to be released on Friday. Data showed unemployment claims in the US for the week ended Saturday rose by 9,000 to 224,000 on a seasonally adjusted basis. This was lower than Reuters' forecast of 215,000 claims.

As for the data to be released later in the day, non-farm payrolls are likely to have risen by 200,000 in November after an increase of 12,000 in October, according to a Reuters survey. The unemployment rate is expected to rise to 4.2% from 4.1% in October.

The Japanese yen was down 0.3% against the dollar as traders assessed the possibility of a rate hike by the Bank of Japan in its meeting this month. Governor Kazuo Ueda last week said that rate hikes are nearing in the sense that economic data are on track. BoJ's board member Toyoaki Nakamura Thursday said that the central bank must move cautiously in raising rates.

The Australian dollar was down 0.4% against the greenback. Geopolitical tensions, China's economic woes and concerns about US president-elect Donald Trump's lingering trade tariffs all weighed on the Aussie unit. (Kabir Sharma)

India Rupee: Premiums up across tenors as RBI ups FCNR(B) deposit ceiling

MUMBAI – Premiums on the dollar/rupee forward contract rose across the curve after the Reserve Bank of India raised the interest rate ceilings on Foreign Currency Non-Resident Accounts (Banks) deposit from one year to five years by 150 basis points. 

"If you see, the FCNR ceiling has been raised, and that has led to a rise in forward premiums," a dealer with a foreign bank said. "The requirement for hedging is expected to go up after such deposits start coming in."

While delivering the December Monetary Policy Committee meeting outcome speech, RBI Governor Shaktikanta Das said the interest rate ceilings have been increased to attract more capital inflows. Banks are now allowed to raise fresh FCNR(B) deposits between one year and less than three years at rates not exceeding the overnight alternative reference rate plus 400 bps compared with 250 bps earlier.

Further, with the upward revision in the rate ceiling on FCNR(B) deposits, the dollar liquidity in the system is also expected to rise, which boosted forward premiums, dealers said.

In another announcement, the RBI cut the cash reserve ratio by 50 basis points to 4.00%. As the market had already factored in this cut, forward premiums did not fall, dealers said. Ideally, with more liquidity, forward premiums go down. The cut in the CRR is likely to release INR 1.16 trillion in the banking system.

Going ahead, dealers said market participants were also waiting for the US employment report, scheduled to be released later Friday, after Indian market hours. The data is expected to provide investors with cues regarding future interest rate cuts by the US Federal Reserve. As for this month's US Federal Open Market Committee meeting, the market consensus is of a 25 bps cut. As per the CME FedWatch tool, the odds of a 25 bps cut were seen at 70.3%, with the rest seeing rates steady.

At 1434 IST, the premium on the one-year exact-period dollar/rupee forward contract was 175.50 paise, against 166.80 paise Thursday. On an annualised basis, the premium was at 2.07%, up from Thursday's close of 1.99%.  (Sourabh Kumar)

India Rupee: Up as RBI raises FCNR(B) deposits ceiling to attract FX flows

MUMBAI – The rupee rose against the dollar after Reserve Bank of India Governor Shaktikanta Das announced an increase in the interest rate ceiling on Foreign Currency Non-Resident Bank deposits, in a bid to attract foreign funds, dealers said. "That movement (the rise in the rupee) was definitely because market reacted to the news of FCNR ceiling rise," a dealer with a foreign bank said. 

"In order to attract more capital inflows, it has been decided to increase the interest rate ceilings on FCNR(B) deposits," Das said, while detailing the Monetary Policy Committee meeting outcome. "Accordingly, with effect from today (Friday), banks are permitted to raise fresh FCNR(B) deposits of 1 year to less than 3 years maturity at rates not exceeding ARR (Alternative Reference Rate) plus 400 bps and deposits with maturity between 3 to 5 years at rates not exceeding ARR plus 500 bps. This relaxation will be available till March 31, 2025."

Further, a relatively lower dollar index also aided the rupee, dealers said. The dollar index fell Thursday and remained near that level Friday. The dollar index, which measures the strength in the greenback against a basket of six major currencies, was 105.82 at 1114 IST, against 105.73 on Thursday and 106.36 on Wednesday. 

Market participants await the release of the US employment report, due later in the day, to assess the rate trajectory in the US, dealers said. "Consequently, overall volumes were lower today," a dealer with a private bank said. For the rest of the day, the rupee is likely to move in a range of 84.55-84.75 against the dollar. Dealers see strong immediate technical resistance for the Indian unit at 84.55 a dollar.  (Sourabh Kumar)

India Rupee: Up as dlr index falls before US jobs data; MPC outcome awaited

NEW DELHI – The rupee rose against the dollar on Friday as the dollar index dropped ahead of a key US non-farm payrolls report for November, due later in the day, dealers said. Market participants await the data for more cues on the pace of future rate cuts by the US Federal Reserve.

Payrolls in the US are expected to have increased by 200,000 last month, according to a Reuters survey, after rising by only 12,000 in October, the lowest number since December 2020. At 0923 IST, the dollar index, which measures the strength of the greenback against a basket of six major currencies, was at 105.78, against 105.73 on Thursday and 106.36 on Wednesday. 

Another event in focus for the currency market is the outcome of the RBI's Monetary Policy Committee meeting at 1000 IST, dealers said. The rate-setting panel is expected to retain the policy repo rate at 6.50% for the 11th meeting in a row, according to an Informist poll. However, most market participants are of the view that the RBI may reduce the cash reserve ratio by 50 bps to counter the tightness in liquidity conditions that has occurred since October due to the RBI's huge interventions in the foreign exchange market. 

"The rupee could gain support from the RBI's efforts to manage liquidity in the banking system, whether through a reduction in the CRR (cash reserve ratio) or open market operations — the central bank's practice of buying or selling government securities in the open market. This adjustment would enable the central bank to step in more effectively in the forex market through dollar sales whenever required," Amit Pabari, managing director at CR Forex, said in a note. 

Dealers expect a sharp depreciation in the rupee if the rate-setting panel opts for a rate cut on Friday. "I think 85.00 (a dollar) may happen easily if there is a rate cut, unless the RBI decides to intervene heavily," said a dealer at a private bank. 

For the rest of the day, the rupee is likely to move in a range of 84.60-84.80 against the dollar. Dealers see strong immediate technical support for the Indian unit at 84.80 a dollar.  (Pratiksha)

India Rupee: Expected range for rupee - Dec 6

MUMBAI – Following are the expected support and resistance levels for the rupee on Friday, as forecast by leading banks and brokerages in an Informist poll:

(Sourabh Kumar) 

End

IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT

Edited by Saji George Titus

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