Indian rupee extends rise but falters past 95/USD on importer hedging, outflows

On Wednesday the rupee strengthened for three straight sessions and reached its best level in over a month, according to Business Recorder. Its advance stalled short of 95 per dollar as importers hedging future purchases and portfolio outflows kept dollar demand strong. Early trading saw a high of 94.77, and the currency closed 0.1% firmer at 95.15.

Reserve Bank of India Governor Sanjay Malhotra defended the recent forex curbs as a way to deter speculation, and said the central bank is prepared to take more steps to keep rupee moves orderly. He also conceded that monetary policy is seldom used for financial stability, though the two are hard to separate completely. Market participants read the comments as a sign that the authorities will not tolerate much further weakness.

Before fresh steps over the weekend, the currency had lost over 7% for the year, and it has gained 2% so far this week. Rupee swap markets are discounting about 100 bps of tightening over the coming year. DBS noted that a durable turnaround needs negative global triggers to fade, and that the latest announcements might not entirely dispel expectations of further policy moves. Investors were waiting for US consumer inflation figures due later in the day, while the dollar index stood at 102.2.