What’s going on here?
The Indian rupee is holding steady near record lows as traders keep their ears tuned to clues from Federal Reserve policymakers on potential interest rate cuts.
What does this mean?
The rupee closed at 83.94 against the US dollar on Friday, barely changed from the previous week and just shy of its all-time low of 83.9725 on August 7. Despite an outflow of $2.5 billion from local equities in August and strong dollar demand from importers pressuring the rupee, interventions by the Reserve Bank of India (RBI) have prevented a breach of the crucial 84 level. Recent positive US economic data has downplayed fears of an economic slowdown, tempering expectations for aggressive Fed rate cuts. Investors are keenly awaiting signals from Fed policymakers, including Chair Jerome Powell, with remarks and minutes from recent meetings expected this week. They anticipate that the Fed might ease policy rates by over 90 basis points in 2024.
Why should I care?
For markets: Rupee holds firm amid market volatility.
Despite external pressures, the rupee remains supported by RBI interventions, staying above the vital 84-handle. Expectations of Fed rate cuts could offer some relief, but market watchers predict the rupee will stay range-bound, with slight appreciation capped at 83.60-83.70. Key upcoming events like the FOMC minutes on August 21 and various US economic data releases will be crucial.
The bigger picture: Global monetary policies in the spotlight.
As developed economies lean towards monetary easing, Indian bond yields are drawing support from foreign portfolio investments. The 10-year government bond yield ended at 6.87% last week, with traders expecting yields to move within 6.85% to 6.95%. While the RBI maintains its current rate to curb inflation, expectations for a monetary easing cycle in India are not off the table, hinting at potential rate cuts starting next year.
