Rupee extends offshore gains after US cuts tariffs on India  

markets

The rupee extended its gains in offshore markets after the US decision to lower tariffs on Indian goods, providing a boost to sentiment around the currency. One-month USD/INR non-deliverable forwards fell as much as 0.4 percent to 90.28, extending an overnight decline of about 1.3 percent.

Traders said USD/INR NDFs finally found some relief after Donald Trump announced that tariffs on India would be cut to 18 percent, marginally lower than the rates applicable to Bangladesh and Pakistan. In return, India probably agreed to stop buying Russian oil to help end the Russia–Ukraine war.

However, market participants remain cautious about chasing the move aggressively, with attention now turning to fresh guidance from the Reserve Bank of India later this week. The central bank’s room for policy easing appears limited after bond markets reacted negatively to last week’s national budget.

Ten-year government bond yields have been climbing towards their highest levels in more than a year, following the government’s record debt-sale programme, adding pressure to the fixed-income market.

Rupee traders are also closely watching domestic equities for confirmation of risk appetite. Experts said a sustained rally in stocks could provide additional support to the currency, potentially pushing USD/INR NDFs back below the 90 level.

Experts said the rupee may open around 90.50 in the onshore market, mirroring its sharp gains in offshore trade.

Anil Kumar Bhansali, Head of Treasury at Finrex Treasury Advisors LLP, said the rupee may gradually strengthen towards the 90 level as foreign portfolio investors could turn buyers of Indian equities and debt following what he described as a decent budget unveiled on Sunday, with the only negative being the increase in securities transaction tax on equity derivatives.

Bhansali said the RBI may step in to cover its short positions at some stage, but may allow the rupee to gain for now as exporters who had been holding short us $ positions could come forward to sell dollars. He expects the rupee to trade in the range of 90 to 91 for the day.

(This story is contributed by Bloomberg.)