Rupee slips against US Dollar by 19 paise

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The rupee weakened on Thursday by about 19 paise amid a stronger dollar and rising global crude oil prices even as Government Security (G-Sec) yields thawed on retail inflation easing to a four month low of 5.22 per cent.

The Indian currency (INR) closed at 86.55 per dollar (USD) against the previous close of 86.3625. The rupee had rebounded on Wednesday, logging its biggest single day gain (of 27 paise) in over seven months, supported by a weaker dollar, improvement in trade deficit and gains in domestic equity markets.

Barclays in a report said: “We revise our forecasts and now look for USD-INR to reach 89.5 by end-2025 from 87.0 previously….We think INR risks are on the downside should the CNY (Chinese Yuan) depreciate more than expected. INR overvaluation, a growing RBI forward book, and broad USD strength, remain factors likely to push the INR weaker.

“We think there has been a change in stance under new RBI Governor Sanjay Malhotra and expect more flexibility on the INR, with more volatility ahead. As such, the INR beta to the USD is also expected to increase as the currency moves more in line with its peers, especially the CNY, which we expect to weaken more sharply in the months ahead.”

Barclays economic research team expect Indian authorities to announce capital flow augmenting measures to help slow rather than stem the one way move in INR.

Supportive policy measures to further compress the current account deficit may not be very useful, given the issues are more related to the capital account, they added.

Meanwhile, yield of the 10-year benchmark G-Sec (coupon rate: 6.79 per cent) closed at 6.75 per cent against previous close of 6.81 per cent, with its price rising by about 40 paise.

Nuvama Wealth, attributed the yield softening to softer than expected core CPI inflation. A segment of the market is hoping that the RBI may announce OMO (open market operation) purchase/CRR cut to infuse durable liquidity in the system, it added.

At the first daily variable repo rate auction conducted by RBI on Thursday, it received bids for drawing funds aggregating ₹30,760 crore (against the notified amount of ₹50,000 crore) from Banks and Primary Dealers. The Central bank accepted all the bids at a weighted average rate of 6.51 per cent.

To ease liquidity tightness in the banking system, the RBI has decided to conduct daily Variable Rate Repo (VRR) auctions, beginning January 16th, until further notice.