Mumbai: The Indian rupee was little moved on Wednesday and dealers said it was likely to hold around 40 per dollar ahead of next week’s monetary policy review as expectations grew that interest rates may rise.
At 10:05 a.m, the partially convertible rupee was trading at 39.960/970 per dollar, steady with 22 April’s close of 39.955/965.
Since 2 April, the rupee has traded a 39.83 to 40.05 range, and the central bank has repeatedly intervened to stem its rise, despite market expectations that it might allow currency strength to help fight inflation, which is running at three-year highs above 7%.
“Everybody is also eyeing 29 April,” a trader said, referring to the Reserve Bank of India’s policy review. “The market is expecting a 25 basis point hike in the repo rate, but I think it’s already been discounted,” he noted.
Last week, the central bank announced a 50 basis point increase in the cash reserve ratio for banks, saying it would drain Rs185 billion from the banking system, India’s main lending rate, the repo rate, is at 7.75%.
Raising rates would widen the interest rate differential to U.S. rates from 550 basis points, which in turn could attract more capital inflows and add pressure to the rupee to rise.