MUMBAI: The Indian rupee is poised to extend its rally on Wednesday after the central bank’s steps to support the currency were reinforced by the governor’s indication that further measures remain an option.
The Indian rupee is expected to open in the 95.04-95.12 range, traders said, after settling at 95.28 to the dollar on Tuesday.
The currency has already surged 1.5% over the past two sessions after the Reserve Bank of India rolled out a series of measures to address the dollar demand-supply imbalance that had kept the rupee under sustained pressure.
In a media interview on Tuesday, RBI Governor Sanjay Malhotra defended the recent forex curbs as an effort to discourage speculative bets.
He said the measures were meant to preserve access to currency hedges for businesses with genuine exposure, while signalling that the central bank is ready to take additional steps to ensure orderly rupee movement.
Malhotra added that while monetary policy is not typically deployed to address financial stability concerns, the two cannot be entirely separated.
“The mandate of price stability cannot be achieved without financial stability, as a stable financial system is essential for the effective transmission of monetary policy,” Malhotra said.
Bankers read Malhotra’s comments as hawkish, with two saying they reinforced the case for a December rate hike, while one said the possibility of a 50 basis point increase was on the table.
“The RBI is pulling out all the stops to break the rupee’s prolonged pressure,” a currency trader at a bank said.
“But the challenge is that the underlying fundamentals remain unfavourable,” pointing to oil prices and weak capital flows.
Oil prices have continued to push higher, with supply concerns showing little sign of abating. Prices rose on Wednesday, with traders assessing the potential impact of fighting between Yemen’s Iran-aligned Houthis and Saudi Arabia on supply.