Rupee nears two-month low ahead of US Fed decision
Mumbai: The Indian rupee on Tuesday closed at a near two-month low against the dollar as investors braced for signals from a two-day meeting of the US central bank starting Tuesday.
The rupee closed at 64.33 to a dollar, a level last seen on 26 July, down 0.29% from its Monday’s close.
The local currency had opened at 64.16 to a dollar.
“There was a lot of dollar demand but there were no sellers as most participants are sitting on their position on expectation of a more hawkish stance from the Federal Reserve,” said a foreign exchange dealer with a private bank, requesting anonymity as he is not authorized to speak to media.
Most economists expect the Federal Open Market Committee (FOMC) to keep interest rates unchanged at the end of its meeting, but offer hints that it is on track to raise its benchmark lending rate by a quarter percentage point in December.
Additionally, the market also expects the Fed to drop clues on the timing of winding down its $4.5 trillion balance sheet, which expanded following the 2008 global economic crisis.
Such signals may boost the dollar, as demand for dollar-denominated assets such as US treasury bills increases, and weigh on the rupee because it may lead to a rise in foreign fund outflows, dealers said.
One of the key reasons for the appreciating trend in the Indian currency this year is the rise in foreign flows into the domestic financial market.
So far this year, the rupee has gained 6%, while foreign institutional investors (FIIs) have bought $6.78 billion and $20.41 billion in equity and debt, respectively.
This trend may reverse in the coming month as flows usually slow in the last quarter of the year because most foreign institutional investors either book profit or avoid fresh buying ahead of the closure of annual accounts.
In the past few months, the Reserve Bank of India mopped up dollars from the market as inflows rose.
This resulted in country’s foreign exchange reserves crossing the $400 billion mark for the first time.