Indian rupee hits two-month low on outflows, investors await RBI outcome with hike priced in

According to Business Recorder, the Indian rupee slid to its lowest level for more than two months on Tuesday, pressured by outflows from local equities. The currency settled at 96.42, 0.1% weaker than its prior close. State-run banks sold dollars, most likely for the Reserve Bank of India, which cushioned the fall.

Markets now await the RBI's policy decision on Wednesday, where a rate increase is widely expected. About 60% of the 61 economists polled by Reuters expect a 25 basis point hike, while swap markets assign a modest chance to a larger 50 basis point increase. The central bank's previous rate increase came in February 2023, and it has been using FX swaps, open market bond sales and reverse repo deals to soak up surplus cash.

J.P. Morgan analysts said a 25 basis point hike paired with a firmer tone, plus open market sales and sell-buy swaps, could give the rupee some near-term support. Investors will also watch policymakers' remarks for signals on the path of benchmark rates, amid a difficult external backdrop for Asia's third-largest economy. Bets against the rupee have stayed firm because of lingering energy supply risks tied to the Middle East conflict.