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Rupee gains as less-hawkish Powell calms strong rate-hike fears

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MUMBAI: The rupee gained on Thursday, tracking strength in most other Asian currencies and equities, while bond yields eased after US Federal Reserve Chair Jerome Powell eased trader concerns over continued aggressive monetary tightening.
Powell sounded suitably hawkish on curbing inflation in his news conference, but also dropped guidance on the size of the next rate hike and noted that “at some point” it would be appropriate to slow down.
US Treasury yields edged lower as bonds rallied after the Fed raised rates by 75 bps, in line with market expectations.
India’s benchmark 10-year bond yield was trading at 7.33% by 0640 GMT, down 1 basis point on the day, while the partially convertible rupee was trading at 79.75/76 per dollar, compared with its close of 79.8975 on Wednesday.
The dollar dropped to a three-week low versus the yen, with the dollar index down 0.3%.
Traders said focus will soon shift to monetary policy committee meeting by the Reserve Bank of India (RBI) due next week. Though the broad consensus was for a 50-bps rate hike, views are likely to be tempered after Fed’s decision.
“We now expect the RBI MPC to raise policy repo rate by 35 bps on Aug. 5 and change stance to calibrated tightening,” economists at BoFA Securities said in a note.
Investors also expect the rupee to be supported by central bank intervention if there is any depreciation pressure on the local currency in the near term.
A senior source aware of RBI’s decision-making recently told Reuters that the central bank could spend up to $100 billion to protect runaway falls in the rupee.
“RBI might not have used more than $25 billion-$30 billion in defending rupee, given the increasing penchant of the regulator to intervene in NDF/Future markets,” State Bank of India said in a recent note.
“Rest of the decline (in foreign exchange reserves) might be purely because of valuation. Enough support for rupee is thus still available,” the lender added.

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