The Indian rupee strengthened on Friday on the back of a softer dollar and India’s central bank kept policy rates unchanged but cut banks’ cash reserve ratios, effectively easing monetary conditions as economic growth slowed.
The rupee closed at 84.6875 against the US dollar, as against 84.7325 in the previous session. The currency posted its fifth consecutive weekly decline, falling 0.2%.
The Reserve Bank of India also raised the interest rate limit that banks can offer on foreign currency non-residential (FCNR-B) deposits to boost foreign exchange inflows as the rupee continues to come under pressure.
The rupee fell to an all-time low of 84.7575 earlier in the week, hit by weakness in the Chinese yuan and strong dollar bids in the non-delivery forward market, with the RBI stepping up intervention.
“Increased capital inflows to India from these FCNR measures may temporarily help the INR at the margin, but should not be enough to shift the overall trajectory of USD/INR to higher levels,” MUFG Bank said in a note.
While the rupee touched a peak of 84.58 after the RBI’s policy announcement, it pared its gains amid dollar demand from importers, including local oil companies, a state-run bank trader said.
The dollar index was slightly higher at 105.8 after falling 0.5% on Thursday, while Asian currencies were mixed.
Investors now await US non-farm payrolls data later on Friday for clues on the future path of Federal Reserve policy rates.
Economists polled by Reuters expected the US economy to add 200,000 jobs in November, while the unemployment rate rose to 4.2% from 4.1% the previous month.
Interest rate futures are currently pricing in about a 67% chance of a Fed rate cut in December.