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Rupee nudges higher on RBI’s call to fight inflation; Fed eyed

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MUMBAI — The Indian rupee firmed on Monday after the Reserve Bank of India vowed to front-load rate hikes to tame stubbornly high inflation, but risk aversion in broader markets kept a lid on solid gains.

The rupee edged up 0.12% to 79.6450 per U.S. dollar by 0433 GMT, compared to its previous close of 79.740. The currency had hovered close to 79 levels last week before settling back in its recent trading range.

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It seems like the RBI would continue on a rate-hike spree as it has hinted inflation is its primary target and this might help the rupee momentarily, but external factors are also of importance this week, a foreign exchange trader said.

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There is risk aversion globally, so the rupee may remain range-bound, he added.

The RBI said in a bulletin late on Friday it would have to front-load its monetary policy to control inflation that has come above its tolerance level since January.

The central bank is widely expected to increase interest rates by another 25 to 50 basis points (bps) at its meeting at the end of this month, with the consensus gradually shifting towards the higher side.

Asian peers lost ground as the Chinese yuan tumbled 0.5% on markets worrying about a raft of central banks about to raise borrowing rates this week that threatens to tip the world into recession and hit demand.

The dollar index ticked up to 109.8 on the day but was expected to surge even more and retest its 20-year peak. The Federal Reserve meets on Tuesday for a two-day policy event and is mostly expected to hike rates by 75 bps.

Yield on the U.S. 2-year paper stood near a 15-year peak, sharply higher than yield on the 10-year bonds . (Reporting by Anushka Trivedi in Mumbai; Editing by Savio D’Souza)


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