MUMBAI — The Indian rupee was expected to open marginally higher on Monday after the Reserve Bank of India vowed to front-load rate hikes to tame stubbornly high inflation, but risk aversion in broader markets is likely to cap any major advance.
The rupee is expected at 79.70 in initial trades, a shade higher than 79.74 in the previous session. Last week, the currency climbed to near the 79 level at one point before slipping back to the middle of its recent trading range.
The rupee “we can safely say” will have another choppy week with the Federal Reserve rate-hike decision “expected to induce more volatility in a market that already looks quite jittery,” a Mumbai-based trader said.
The risk of rupee seeing 80 once more is “way higher than it having another crack at 79,” the dealer said.
The RBI, in a monthly bulletin released late Friday, said it would have to front-load its monetary policy to control inflation that breached its tolerance level since January,
The central bank is widely expected to increase interest rates by another 25-50 basis points at its meeting at the end of this month.
The Fed’s two-day meeting begins on Tuesday, at which the central bank is expected to hike rates by either 75 or 100 basis points. The odds of a 100 bps rate hike have fallen off it in recent sessions with Fed Fund futures now pricing in a 1-in-5 chance of that happening.
Apart from the quantum of rate hike, traders will scrutinize Fed Chair Jerome Powell’s press conference and the new forecasts for inflation and interest rates.
“We expect a third consecutive 75bps hike,” ING Bank said in a note. “A more hawkish message surrounding sticky inflation will see the Fed dots closer reflect the market pricing of a 4.25-4.5% terminal rate.”
The dollar index was a shade higher to begin the week, while Asian currencies were mixed. The 2-year U.S. yield was a few basis points below 3.90%.
Asian shares were mostly lower after the S&P 500 Index slipped on Friday to cap off its worst weekly decline in two months.
KEY INDICATORS: ** One-month non-deliverable rupee forward at 79.92; onshore one-month forward premium at 19.5 paise ** USD/INR Sept futures closed at 79.8075 on Friday ** USD/INR forward premium for the end of the current month is 6 paise ** Dollar index at 109.82 ** Brent crude futures up 0.9% at $92.2 per barrel ** Ten-year U.S. note yield at 3.46%, India 10-yr bond yield at 7.27% ** SGX Nifty nearest-month futures up 0.1% at 17,574 ** NSDL data shows foreign investors sold a net $85.4 million worth of Indian shares on Sept. 15
** NSDL data shows foreign investors bought a net $109.8 million worth of Indian bonds on Sept. 15
(Reporting by Nimesh Vora; Editing by Savio D’Souza)