Rupee Holds Steady At 82.33 Against A Strong Dollar On Expected RBI Intervention

The rupee held its ground against a strong dollar on Thursday, extending a steading pattern seen this week on the Reserve Bank of India's intervention to limit the currency's sharp declines even as the global mood pointed to risk aversion ahead of key US inflation data.

According to Bloomberg, the rupee was last at 82.3338 per dollar, after opening at 82.2800, compared to its previous close of 82.3112.

PTI reported that the rupee gained 2 paise to 82.31 against the US dollar in early trade.

"The RBI continued to protect by selling dollars and parking the same in forwards to avoid liquidity crunch in rupee which is already running in a deficit. The rupee to remain in a range of 82 to 82.50 for the day with mid month demand kicking in today," said Anil Kumar Bhansali, Head of Treasury at Finrex Treasury Advisors.

Financial markets wait for key US inflation data that could determine the magnitude of rate hikes the Federal Reserve is likely to deliver in this cycle after the minutes of the previous meeting released on Wednesday pointed to a hawkish mood.

The sell-off in global risk assets extended to Thursday, not sparing even the safe-haven but fragile yen.

The yen hit a trough of 146.98 per dollar overnight - its lowest since August 1998 - and last traded at 146.82.

The release of US inflation data later on Thursday is anticipated to support predictions that the central bank there will continue to tighten policy aggressively, especially after Fed Governor Michelle W Bowman said that "sizable increase" in the key interest rate would remain on the table if inflation continues to remain on the higher side.

Details are going to be the ones that matter here...and the drivers behind the core (reading) will be super important," Rodrigo Catril, a Senior Currency Strategist at National Australia Bank, told Reuters.

"It will require a significantly lower number to change the rhetoric from the Fed, and we don't see that at the moment," he added.

Fears that aggressive policy from major central banks in their fight against surging inflation would lead a  global recession has boosted the dollar's safe-haven appeal and weighed on almost every single currency.

The rupee has collapsed from about 74 per dollar at the start of the year to well past 82 against the greenback, a fall of over 10 per cent.

That despite the RBI's attempt to keep the rupee from breaching key psychological levels not seen previously ever.

A Reuters report quoting bankers and traders showed that the RBI asked local banks to refrain from taking any further rupee positions in the offshore market in its fight to stem the rupee's dramatic fall this year.

That is the latest measure the Indian central bank has used apart from selling dollars through state-run banks in the spot and futures market by burning its forex reserves - nearly $100 billion spent from the FX war chest since Russia invaded Ukraine late in February.

India's retail inflation accelerated to 7.41 per cent last month, the highest since April, driven by the rising cost of food and fuel, squeezing already stretched household budgets further.

That will hit India's poor and middle classes, already suffering from COVID-19 pandemic-related economic shocks, particularly the rises in the prices of basic commodities like cereals and vegetables as they spend a significant portion of their income on food.

The latest inflation print adds more pressure on the RBI in its fight against surging price pressures and a weakening rupee as it tries to balance its measures to ensure elevated inflation is subdued without hurting the country's economic growth.