By Jaspreet Kalra
MUMBAI (Reuters) – The Indian rupee weakened on Monday, pressured by a decline in the offshore Chinese yuan and month-end importer dollar bids, while dollar-rupee forward premiums nudged higher.
The rupee was at 85.0575 against the U.S. dollar as of 10:10 a.m. IST, down from its close of 85.0150 in the previous session.
The offshore Chinese yuan fell 0.2% to 7.30 as China’s bond yields dropped in tandem with softer U.S. yields, with China’s 10-year bond yield declining to a record low before stabilizing.
Traders expect the rupee to hold a gradual depreciation bias in the near-term with interventions by the Reserve Bank of India likely to continue damping volatility.
While frequent central bank interventions have helped the rupee be the least volatile among major Asian peers, they have also weighed on India’s foreign exchange reserves – which declined to a near-six month low of $652.87 billion as of Dec. 13.
“If you see some inflows, it (USD/INR) may dip towards 84.90 but other than that the upward bias should hold,” a trader at a private bank said.
Asian currencies were trading mixed while the dollar index was little changed at 107.7. The index had declined 0.5% on Friday following softer-than-expected U.S. inflation data that helped assuage concerns about limited policy easing by the Federal Reserve next year.
Traders are now pricing in 38 basis points of rate cuts by the Federal Reserve over 2025, up from about 35 basis points priced in before the data was released.
Meanwhile, dollar-rupee forward premiums rose with the 1-year implied yield up 2 basis points at 2.24% while the 1-month forward premiums rose to 20 paisa, aided by an elevated overnight swap rate.
Cash dollar inflows related to ongoing initial public offerings (IPO) lifted the swap rate alongside tightness in INR liquidity, traders said.
(Reporting by Jaspreet Kalra; Editing by Janane Venkatraman)
