The Indian rupee closed at 95.78 against the dollar on Thursday, slightly depreciating from its previous close of 95.70, as market participants await key announcements from the Reserve Bank of India (RBI). The 10-year government bond yield remained nearly unchanged at 7%, compared to 7.01% previously.
The rupee traded within a narrow range of 95.59 to 95.80 during the day. Intervention by the RBI helped prevent further depreciation beyond the 95.80 level, according to traders. The central bank has intensified its intervention efforts since the rupee hit a record low of 96.96 on May 20, aiming to prevent a breach of the 97 per dollar mark.
Market sentiment was subdued as investors adopted a 'wait and watch' approach ahead of the RBI's monetary policy meeting and potential measures to support the currency. Demand for the dollar from oil companies persisted due to unresolved peace talks between Iran and the US.
“Markets were in a wait and watch mood on Thursday as key announcements - RBI policy and some announcements to uplift the currency - are expected. However, there was dollar demand for oil companies as peace talks between Iran and US have not yet come to a solution.”
Anil Bhansali, head of treasury at Finrex Treasury Advisors
The one-month forward premium stood at 3.27% on Thursday, down from 3.42% previously, while the one-year forward premium increased to 3.02% from 2.90%. A reduction in capital gains tax on foreign investments in government bonds is being considered as a strategy to boost inflows, according to reports.
Anil Bhansali, head of treasury at Finrex Treasury Advisors, noted, "Markets were in a wait and watch mood on Thursday as key announcements - RBI policy and some announcements to uplift the currency - are expected. However, there was dollar demand for oil companies as peace talks between Iran and US have not yet come to a solution."
Background
The RBI's interventions and upcoming policy decisions are crucial as they aim to stabilize the currency and bond markets amid global uncertainties. The rupee's recent volatility highlights the challenges faced by emerging markets in maintaining currency stability.
Looking ahead, market participants will closely monitor the RBI's monetary policy decisions and any measures announced to support the rupee. These developments will provide further direction for the currency and bond markets in the coming days.
