Rupee sees the biggest daily gain vs dollar in 60+ days after the Fed comment.

India's partially convertible rupee ended trading at 79.7550 compared to its close of 79.8975.


The Indian rupee gained the most in more than two months on Thursday, tracking gains in most other Asian currencies and stocks, while bond yields fell after comments from US Federal Reserve Chair Jerome Powell.

In his news conference, Powell sounded appropriately hawkish on inflation, but he also provided no guidance on the size of the next rate hike and stated that “at some point” it would be appropriate to slow down.

The partially convertible rupee of India ended trading at 79.7550, down from 79.8975 at the close. It increased by 0.2%  on the day, the most since May 20.

The benchmark 10-year bond yield in India ended the day at 7.33%, down 1 basis point from the previous day.

US Treasury yields fell as bonds rallied after the Fed raised rates by 75 basis points, as expected by the market.

On Thursday, the US dollar fell to a three-week low against the Japanese yen and struggled against its other major rivals as markets increased bets on a slowing in the pace of rate hikes.

Traders say the focus has shifted to the Reserve Bank of India’s (RBI) monetary policy committee meeting next week. Though a 50-basis-point rate hike was widely expected, the Fed’s decision is likely to temper expectations.

“We expect the RBI’s monetary policy committee to unanimously vote for a 35 basis point rate hike at next week’s policy review meeting,” said Barclays economists in a note.

“While inflation is likely to remain elevated in the near term, we believe the MPC will acknowledge that price pressures have peaked and will take advantage of the favourable tailwinds by slightly lowering its inflation forecasts.”

Traders said they would be paying close attention to the central bank’s views on liquidity following the recent tightening in the money markets, which has pushed the inter-bank call money rate above the marginal standing facility rate.

“With inflation drivers easing, I see terminal repo rates in the 6 percent -6.25 percent range for now, and a longish period of pause following that,” wrote Akhil Mittal, senior fund manager at Tata Mutual Fund, in a note.

“I believe the growth situation in India is not as bad as it is in the West (recessionary expectations are rising in the West), and the RBI may not be pushed to support growth immediately,” he added.


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