Indian rupee to see mild pressure with RBI rate decision, liquidity measures in focus

Business Recorder reported that the Indian rupee may come under slight pressure when trading opens on Wednesday, with traders expecting it between 96.44 and 96.46 against the dollar. The currency closed Tuesday at 96.42. Attention is centred on the Reserve Bank of India, which announces its decision at 10:00 a.m. local time and may lift rates for the first time after more than three years without a change.

Reuters polling found that 35 of 61 economists anticipate a 25-basis-point increase in the repo rate, while 26 see no shift. Swap markets already price in that hike in full and leave room for a 50-basis-point move. A currency trader at a private-sector bank warned that a no-change outcome could weigh heavily on the rupee, whereas a larger increase would give only a brief lift.

Liquidity is the other focus, since the central bank has been mopping up extra cash through variable-rate reverse repos, FX swaps and open-market bond sales. Market participants want to know whether the central bank will keep using these temporary tools or adopt more lasting measures. IDFC First Bank analysts said durable liquidity has been withdrawn yet core surplus stays high, adding that the weighted average call rate should track the repo rate.