MUMBAI — The Indian rupee weakened on Thursday, after U.S. Federal Reserve Chair Jerome Powell said rates would need to rise more than previously expected by policymakers.
The rupee eased to 82.85 per dollar, against its previous close of 82.78. The currency had consolidated around 82.70 all of this week ahead of the U.S. central bank meeting.
The Fed raised its benchmark funds rate by 75 basis points (bps) to 3.75%-4% as widely expected overnight.
But Powell dashed market expectations of any dovish pivot and said it was “very premature” to think about pausing, adding that the peak for rates would likely be higher than previously expected.
“The central bank might have finished its phase of 75 bps hikes and that could mean we will next see 50 bps or 25 bps-sized hikes, yet the terminal rate would be higher,” Elara Capital economist Garima Kapoor.
“This gives some breather to India as the country’s central bank may not have to hike as aggressively.”
The Reserve Bank of India meets later in the day for a special meeting, most likely to discuss its first ever inflation target miss. Its official monetary policy meeting is slated for Dec. 7.
The dollar index rose overnight, while the benchmark 10-year U.S. Treasury yields reversed course to firm to 4.1151%, while two-year yield climbed to 4.63%, hovering near its high this year.
Rising U.S. yields pushed down USD/INR forward premiums, with the 1-year implied yield sliding to 2.28% from 2.35% in previous session.
Foreign exchange traders said they would keep a watch on U.S. non-farm payrolls data due Friday and inflation print next week. (Reporting by Anushka Trivedi in Mumbai; Editing by Rashmi Aich)