Indian Rupee Dips On Outflows; State-Run Banks’ Dollar Sales Cushion Fall

Indian rupee: The Indian rupee ended slightly weaker on Wednesday, pressured by persistent portfolio outflows and steady hedging demand from importers. Despite this, periodic dollar selling by state-run banks helped limit a sharper decline in the currency. The rupee closed at 89.27 per U.S. dollar, slipping marginally from its previous close of 89.22.

Rate-Cut Buzz Lifts Markets, But Not The Rupee

Global equities gained momentum as expectations strengthened for a U.S. Federal Reserve rate cut in December. India’s benchmark indices, the BSE Sensex and Nifty 50- rose more than 1%, marking their best single-day performance since June.

But equity optimism failed to translate into currency support. Traders highlighted that outflows continued to weigh on the rupee, even though dollar sales from state-run banks prevented a deeper slide.

“The market is clearly looking to go long, and every dip in USD/INR is being bought,” FX advisory firm IFA Global noted.

Yuan Strengthens As Dollar Weakens

The dollar index hovered near a one-week low, while the offshore Chinese yuan climbed to a 13-month high, supported by the Chinese central bank’s guidance amid broad dollar weakness.

Against the rupee, the yuan traded close to its record level of 12.60, touched just last week.

Concerns around steep U.S. trade tariffs, along with unfavourable trade and portfolio flows, have dragged the rupee down nearly 4% against the dollar and over 7% against the yuan so far this year.

Forward Premiums Rise Ahead Of RBI Policy

Dollar-rupee far-forward premiums edged slightly higher, with the one-year implied yield around 2.21%, close to its monthly high. With markets now nearly certain of a Fed rate cut next month, traders say the direction of premiums will hinge largely on the Reserve Bank of India’s upcoming policy decision on December 5. RBI Governor Sanjay Malhotra said earlier this week that there is room to lower policy rates further, though the timing will depend on deliberations by the Monetary Policy Committee.

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