Rupee closes at 3-week high against $ as record low CPI, IIP triggers rate cut hopes
Intraday, the rupee touched a high and low of 64.39 and 64.47, respectively.
The Indian rupee on Thursday closed at 64.44 to the dollar, 0.15 percent stronger than its previous close and a 3-week high, as a record low headline inflation and lower-than-expected industrial output data increased traders’ expectation of a rate cut from the Reserve Bank of India.
Intraday, the rupee touched a high and low of 64.39 and 64.47, respectively. Dealers said that both state-owned and foreign banks were seen selling the dollar in favour of the rupee throughout the session.
The Consumer Price Index (CPI) fell to 1.54 percent in June from 2.18 percent in May and the Index for Industrial Production (IIP) fell to 1.2 percent from 2.6 percent over the same period.
“Because of these numbers, there is a widespread belief now that the RBI will cut rates by 25 basis points in August and also turn dovish in their comments,” said a dealer with a foreign bank. “If the RBI comments are indeed dovish, we can even expect further rate cuts before the end of 2017.”
The dollar index, which measures the strength of the greenback against a basket of six other major currencies, was trading largely flat at 95.75.
Most Asian currencies were trading higher against the dollar after Janet Yellen, the US Federal Reserve chair, expressed concern over inflation remaining low. The South Korean won, Taiwan dollar, Indonesian rupiah, Malaysian ringgit and China offshore were all trading between 0.1 and 0.8 percent higher against the dollar.
Meanwhile, the 10-year benchmark yield fell to a 3-week low of 6.456 percent. Bond yields and prices move in opposite directions.
Indian bonds have remained untouched by the recent sell-off seen in government bonds of countries across the globe. Analysts maintain that India offers one of the highest real interest rates in the world, certainly the highest in Asia, and this will keep investors interested in Indian debt.