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Informist, Friday, Jun. 6, 2025

By Sourabh Kumar

MUMBAI – The rupee ended the day sharply higher against the dollar due to continuous foreign fund inflows into domestic equities, dealers said. The rupee also received support from dollar sales likely by the Reserve Bank of India earlier in the day, when the Indian currency came under pressure after the central bank's Monetary Policy Committee cut the repo rate by an unexpected 50 basis points, they added.

"Exporters also sold, apart from FPIs, and foreign banks were just on selling," a dealer with a foreign bank said. After moving in a range of about 32 paise, the rupee ended the day higher at 85.6250 a dollar, against Thursday's close of 85.7900 a dollar.

The rupee started the day on a negative note, coming under pressure from importers' dollar purchases before the RBI's MPC meeting outcome at 1000 IST. They bought dollars in anticipation that the rupee might weaken after the Monetary Policy Committee's rate decision. The rupee indeed fell against the dollar after the MPC cut repo rate by more than expected. The Indian currency was trading broadly steady against the dollar just before the RBI governor started detailing the outcome of the MPC meeting. 

Soon after RBI Governor Sanjay Malhotra announced a 50-bps cut in the repo rate, the rupee fell to the day's low of 85.9325 a dollar.  Apart from a jumbo rate cut, the MPC also changed its policy stance to 'neutral' from 'accommodative'.

In an Informist poll of 14 economists and market participants, 13 had expected the MPC to lower the repo rate by 25 bps from 6.00%, and only State Bank of India had projected a 50-bps cut. The RBI also cut the cash reserve ratio by 100 bps to 3.0% of the bank's net demand and time liabilities, Malhotra said while detailing the outcome of the MPC meeting.

Even as the rupee came under pressure due to a higher-than-expected repo rate cut, the losses in the Indian currency were limited as the RBI likely sprung into action, selling dollars to prevent the rupee from falling below 85.9325 a dollar, dealers said. Noting the swift action by the central bank, exporters also sold the greenback, dealers said.

"Exporters actually sold quite a lot, because they saw the central banks selling yesterday (Thursday) and today (Friday), which saved it (the rupee) from falling below 86 a dollar," a dealer with another foreign bank said. "The view is that the rupee will not easily fall below 86 a dollar, and that is why exporters sold today."

After a likely intervention by the central bank helped the rupee erase its losses, foreign banks also sold dollars on behalf of their overseas clients, who wanted to invest in domestic equities, dealers said. It pushed the rupee further up to the day's high of 85.6200 a dollar, dealers said.

Meanwhile, the dollar index, which remained broadly steady for most of the day, inched slightly higher towards the market closing time. The dollar index, which measures the strength of the greenback against a basket of six major currencies, was 98.97 at 1530 IST, slightly up from 98.71 Thursday and 98.82 Wednesday. 

FORWARDS 

The dollar/rupee forward premium fell sharply across the curve Friday, with the one-year exact-period premium settling at over a 10-month low due to a surprisingly higher repo rate cut by the Reserve Bank of India as well as a cut in the cash reserve ratio, dealers said. The one-year exact-period dollar/rupee forward premium closed at 1.82%, the lowest since Jul. 26, 2024.

The cut in the cash reserve ratio, to be carried out in four tranches of 25 bps each, is expected to infuse liquidity to the tune of INR 2.5 trillion into the banking system, Malhotra said. The expectation of a rise in banking system liquidity pulled down forward premiums, dealers said. On Thursday, the RBI had net absorbed INR 3.03 trillion, marginally higher from INR 2.86 trillion Wednesday, central bank data showed.

Market participants now expect the forward premium to steadily fall. "I think 1.95% should be the top now, and it could go down to around 1.65-1.70% in some time, and that would be the first base level," a dealer with a foreign bank said. "I am not sure how fast that fall could be, but it will come down now."

The forward premium was also pushed lower due to a rise in the benchmark 10-year US Treasury yield, dealers said. The 10-year US Treasury yield closed 3 bps higher at 4.40% Thursday. Forwards of a currency pair are reflective of the interest rate differential between the two countries. 

At 1530 IST, the one-year exact period dollar/rupee forward premium settled at 1.82%, down from 1.91% Thursday and 1.90% Wednesday. On an absolute basis, the premium was 156.10 paise, down from 164 paise Thursday and Wednesday. 

OUTLOOK

The market will remain shut Saturday. On Monday, the rupee may receive support from expected foreign fund inflows into domestic equities, dealers said. Market participants will look forward to any comments by US President Donald Trump around tariffs or the US economy. The rupee will track the movement of the dollar index, dealers said.

"The move supports risk assets and encourages capital inflows, aiding the rupee's short-term strength," Jateen Trivedi, VP Research Analyst - Commodity and Currency, LKP Securities, said. "Technically, 86.00 remains a strong support level, and the immediate resistance zone lies between 85.25 and 85.00." The rupee is expected to trade between 85.10 and 86.00 against the dollar Monday. Dealers peg key technical support for the rupee at 85.50 against the greenback.

India Rupee - World FX: Dollar index rises slightly ahead of US jobs data

MUMBAI – The dollar index recovered from its over-six-week low ahead of the US non-farm payrolls data due later in the day. Economists in a Reuters poll forecast the non-farm payrolls to have increased by 130,000 and the unemployment rate to be steady at 4.2%.

The dollar index fell to an over-six-week low of 98.35 Thursday after yet another weaker-than-expected jobs data, which signalled a softening US labour market. The US initial jobless claims for the week ended May 31 rose by 8,000 to a seasonally adjusted 427,000. Economists in a Reuters poll had forecast 235,000 claims for the week. 

At 1530 IST, the dollar index, which measures the strength of the dollar against a basket of six major currencies, was at 98.97, slightly up from 98.71 Thursday and 98.82 Wednesday.

US President Donald Trump spoke to China's President Xi Jinping on the telephone Thursday. Both leaders agreed that officials from their countries will meet soon and resume bilateral trade negotiations, hinting at ending the current trade uncertainties. Trump described the phone call as "very good" and said it focused "almost entirely on trade with a very positive conclusion for both countries".

The euro was down 0.25 against the greenback after exports and industrial output in Germany, the bloc's largest economy, fell more than expected in April as demand from the US decreased. German exports fell 1.7% on month in April. Analysts had forecast a 0.7% drop in a Reuters poll. The German industrial production fell by 1.4%, against a 1.0% decrease estimated by economists. 

The Japanese yen was down 0.4% against the US currency after houesehold spending in Japan fell unexpectedly in April as consumers feared higher prices. Consumer spending fell 0.1% on year in April, against the market forecast of a 1.4% rise, and the 2.1% increase in March.

The pound sterling fell 0.3% against the greenback. The UK's Finance Minister Rachel Reeves said Thursday the upbeat business survey and strong March quarter GDP suggested the British economy is recovering from the sluggishness seen last year. "The most recent GDP numbers, 0.7% growth in the first quarter, the strongest in the G7 (Group of Seven), and recent business surveys ... are very positive," Reeves said. However, public unrest remains about the slow improvement in .living standards, she added.

The Canadian dollar was steady against the US currency ahead of the unemployment data for May due later in the day. The Swiss franc was down 0.3%. While the Australian dollar fell 0.3%, the New Zealand dollar traded flat against the greenback.  (Gowri Lakshmi)

India Rupee: Premium at 10-month low as RBI surprises with CRR, 50-bps rate cut

MUMBAI – The dollar/rupee forward premium fell sharply across the curve Friday, with the one-year premium hitting over a 10-month low due to a surprisingly higher repo rate cut by the Reserve Bank of India as well as a cut in the Cash Reserve Ratio, dealers said. 

"It was unexpected, 50 bps cut and CRR measures, which is why premiums fell so much," a dealer with a state-owned bank said. "I am not sure how low it (forward premiums) can go, as we are still assessing governor's speech, but we have seen some bit of paying coming in."

The RBI's Monetary Policy Committee Friday unexpectedly lowered the policy repo rate by 50 basis points to 5.50%. The committee also changed the policy stance to 'neutral' from 'accommodative'. The 50-bps cut was a surprise as market was expecting a 25-bps repo rate cut. Only State Bank of India had expected a 50-bps cut, while in an Informist poll of 14 economists and market participants, 13 had expected the MPC to lower the repo rate by 25 bps from 6.00%.

The RBI cut the Cash Reserve Ratio by 100 basis points to 3% of banks' net, demand and time liabilites, Governor Sanjay Malhotra said while detailing the outcome of the MPC's meeting Friday. To be carried out in four tranches of 25 bps each, the cut in cash reserve ratio is expected to infuse liquidity to the tune of INR 2.5 triliion into the banking system, Malhotra said. 

The expectation of a rise in banking system liquidity pushed forward premiums lower, dealers said. On Thursday, the RBI had net absorbed INR 3.03 trillion, marginally higher from INR 2.86 trillion Wednesday, central bank data showed. The forward premium was also pushed lower due to a rise in the benchmark 10-year US Treasury yield, dealers said. Forwards of a currency pair are reflective of the interest rate differential between the two countries. 

However, the fall in forward premiums was limited as a few banks purchased forward dollars, taking advantage of a relatively lower premiums, dealers said. The one-year exact-period dollar/rupee forward premium fell to 1.80% on an annualised basis, the lowest since Jul. 26, 2024. The premium was 1.84% at 1140 IST, down from 1.91% Thursday and 1.90% Wednesday. On an absolute basis, the premium was 158.00 paise, down from 164.00 paise Thursday and Wednesday.  (Sourabh Kumar)

India Rupee: Pares losses on RBI dollar sales; 50-bps rate cut surprises mkt

MUMBAI – The rupee erased all losses as the Reserve Bank of India is likely to have sold dollars after the Indian currency came under pressure due to a higher-than-expected rate cut by the central bank's Monetary Policy Committee, dealers said. The rupee fell to a low of 85.9325 a dollar, soon after the RBI's MPC cut the repo rate by 50 basis points, against the expectation of a 25-bps cut, dealers said.

"The 50 bps cut was unexpected and then the dollar/rupee drove higher, everyone bought," a dealer with a foreign bank said. "He delivered more than expectation." Apart from an unexpected 50 bps cut in the repo rate, the committee also changed the policy stance to 'neutral' from 'accommodative'. 

In an Informist poll of 14 economists and market participants, 13 had expected the MPC to lower the repo rate by 25 bps from 6.00%, while only State Bank of India projected a 50-bps cut. The RBI also cut the Cash Reserve Ratio by 100 bps to 3.00% of net demand and time liabilities, in four tranches.

Importers purchased the greenback on expectation of a more fall in the rupee, which further weighed on the India currency, dealers said. Meanwhile, the dollar index remained relatively lower, which supported the rupee, dealers said. The dollar index, which measures the strength of the greenback against a basket of six major currencies, was 98.80 at 1049 IST, against 98.70 Thursday and 98.82 Wednesday. A rise in domestic indices supported the rupee, dealers said. Both the Nifty 50 and BSE Sensex were up 0.7% at 1051 IST.

During the day, the rupee is seen moving in a range of 85.70 to 85.95 against the dollar. Dealers peg key technical resistance for the rupee at 85.70 against the greenback.  (Sourabh Kumar)

India Rupee: Steady ahead of MPC meet outcome; importers' dollar buys weigh

MUMBAI – The rupee was steady against the dollar Friday ahead of the monetary policy decision of the Reserve Bank of India, dealers said. RBI's Monetary Policy Committee is widely expected to lower the benchmark repo rate by 25 basis points after its three-day meeting, dealers said. In an Informist poll, 13 of the 14 economists polled expect a quarter percentage point reduction in the repo rate, with State Bank of India being the sole outlier, expecting a jumbo cut of 50 bps. 

"Market is cautious ahead of the deision. Nothing significant in early trade, the normal buying-selling is there," a dealer at a private bank said. "Until the decision, not much market moving activity is expected. Even outflows, a good chunk of them has already gone out, not expecting any large outflows in the day as well."

The rupee fell to a low of 85.9125 soon after the market opened as a few importers rushed to purchase the greenback, fearing further fall of the rupee, dealers said. A few banks also sold the greenback, likely on behalf of foreign portfolio investors, who wanted to invest in domestic financial markets, dealers said. This limited the rupee's fall in early trade, according to some dealers.

The Indian currency was however, supported by a fall of the dollar index, dealers said. The index plunged to an over six-week low Thursday as investors assessed US jobs data, which hinted at a weakening US labour market. Initial jobless claims for the week ended May 31 rose 8,000 to a seasonally adjusted 247,000, the highest level since October. Economists in a Reuters poll had forecast 235,000 claims for the week. 

At 0925 IST, the dollar index, which measures the strength of the dollar against a basket of six major currencies was at 98.77, little changed from the previous close of 98.71 and 98.82 on Wednesday. The index fell to 98.35 Thursday, the lowest level since Apr. 22. Market participants now await US non-farm payrolls data later in the day. Economists in a Reuters poll forecast the non-farm payrolls to have increased by 130,000 jobs and the unemployment rate to be steady at 4.2%.

During the day, the rupee is seen moving in a range of 85.70 and 86.10 against the dollar. Dealers peg key technical support for the rupee at 86.00 against the greenback.  (Gowri Lakshmi)

India Rupee: Expected range for rupee - Jun 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:

(Gowri Lakshmi, Pratiksha and Sourabh Kumar)

End

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

Edited by Tanima Banerjee

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