(Photo: Reuters)
(Photo: Reuters)

Rupee closes flat ahead of Wednesday holiday and RBI policy on Thursday

  • Traders avoid taking long positions as RBI is expected to effect a rate cut
  • Traders are also looking for clues, statements and an announced interest rate decision by US Federal Reserve on June 19

Mumbai: The Indian rupee on Tuesday closed little changed against US dollar as traders avoided taking long positions ahead of key Reserve Bank of India's (RBI) bi-monthly policy decision.

The rupee ended at 69.26 a dollar, up 0.01% from its previous close of 69.27. The Indian currency had opened at 69.14 a dollar. Markets are closed on Wednesday on the occasion of Eid.

Traders are awaiting announcement of bi-monthly policy by Reserve Bank of India on Thursday with the expectation of a rate cut. According to economists and bankers surveyed by Mint, the central bank is likely to cut the key policy rate by 25 bps.

Bank of America Merrill Lynch economist Indranil Sen Gupta expects RBI to cut interest rate by an unconventional 35 basis points on Thursday. Sen has given five reasons for 35 basis rate cut.

"First, fading fiscal risks, after PM Modi's re-election, should allow a cut greater than 25 bps, in line with Governor Shaktikanta Das' out-of-the-box proposal. Sub-potential growth contains inflation risks. Our India Activity Indicator is also weak. Second, we track May inflation at a lowly 3.3%, well within the RBI's 2-6% inflation mandate. Third, the Modi regime has shown fiscal discipline by not competing with the Congress's NYAY plan that would have accounted for 1.9% of GDP. Fourth, the transmission to lending rate cuts needs sustained RBI easing. Finally, the Fed has turned dovish, with the US-China trade war dragging on," said BofA Merrill Lynch Global Research report

Traders are also looking for clues, statements and an announced interest rate decision by US Federal Reserve on June 19.

The benchmark Sensex index was down 0.46% on Tuesday at 40,083.54 points. Year to date, the index has risen 11.64%.

The 10-year bond yield ended at 7.02% compared with Monday's close of 6.982%. Bond yields and prices move in opposite directions.

So far this year, the rupee has risen 1% against the US greenback. During the period, foreign investors bought $11.19 billion in Indian equities and $235.70 million in debt market.

Asian currencies were trading higher. Indonesian rupiah (1%), Philippines peso (0.26%), South Korean won (0.19%), Taiwan dollar (0.18%), Malaysian ringgit (0.13%), Japanese yen (0.07%). However, Thai Baht was down 0.13%, Singapore dollar was trading 0.12% lower, Hong Kong dollar was also trading 0.06% lower.

The dollar index, which measures the US currency’s strength against a basket of major currencies, was at 97.176, up 0.04% from its previous close of 97.142.

(Bloomberg contributed this story)

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