On Wednesday the rupee slipped a bit, ending at 89.7850 per U.S. dollar, as Indian companies bought dollars and some forward contracts came due, even though the RBI stepped in with a big liquidity swap.
Why the Rupee Fell
Local firms needed dollars for imports and other payments, which pushed the rupee down. At the same time, many non‑deliverable forward (NDF) contracts that hedge future dollar purchases reached their maturity dates, creating extra demand for dollars in the market.
RBI’s $10 bn FX Swap
The Reserve Bank of India announced a three‑year, $10 billion foreign‑exchange swap that will start next month. This move is meant to add $32 billion of liquidity to banks over the next few weeks. After the announcement, forward‑rate premiums fell sharply, showing that traders expect more dollar supply.
Impact on Bond Yields
With the swap and open‑market bond purchases, the 10‑year Indian government bond yield dropped 8 basis points to 6.55%. Analysts say the combined actions help keep money‑market rates stable and support the banking system.
Global Dollar Trend
Elsewhere, the U.S. dollar was on track for its worst annual performance in more than 20 years, as investors think the Federal Reserve may cut rates next year. This broader weakness gave some relief to the rupee, but local demand kept pressure on the currency.
What’s Next?
- India’s markets will be closed on Thursday for the Christmas holiday.
- Traders will watch how the RBI’s swap influences dollar demand and bond yields in the coming weeks.
- Global dollar movements will continue to affect the rupee’s direction.
Remember, this is just an overview, not a prediction. Do your own research and consider your own risk tolerance before making any investment decisions.