Rupee Nears Record Low Amid Dollar Resilience Despite Fed Rate Cut Speculation

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MUMBAI: Despite U.S. inflation statistics raising chances of a December Federal Reserve rate decrease, the Indian rupee is expected to remain close to its all-time low versus the U.S. dollar on Thursday due to strong demand for the greenback and muted market mood. 

A little weaker than its previous finish of 84.83, the rupee's one-month non-deliverable forward (NDF) contract predicts an opening of about 84.85 per US dollar. Due to ongoing dollar bids and uncertainty in the world economy, traders continue to exercise caution, which puts pressure on the rupee. 

Despite the Fed Cutting Odds, the Dollar Gains Momentum

Following the announcement of U.S. inflation data on Wednesday, which was in line with market forecasts, the dollar index held steady at 106.5. According to CME's FedWatch program, the data strengthened the likelihood of a December rate decrease to 98%, up from 88% the day before. 
Notwithstanding these forecasts, the issuance of long-term bonds and worries over a growing U.S. budget deficit caused the U.S. dollar to remain strong as Treasury rates increased. Due to consistent demand from importers and the Reserve Bank of India's (RBI) involvement to reduce volatility, spot rates are expected to remain range-bound, according to a private bank trader, even if the possibility of a rate drop may have a greater impact on forward premiums. 

Deepening Rupee Weakness 

Due to strong dollar buying in the NDF market and a declining Chinese yuan, the rupee fell to a record low of 84.86 on Wednesday. Traders said the outlook for the currency has been further darkened by expectations of a dovish move in RBI policy next year. 
According to market conjecture, a more accommodating monetary policy stance may result from the expected nomination of a new RBI governor in 2025. The Monetary Policy Committee (MPC) is anticipated to adopt a dovish stance in 2025, with rate reduction perhaps starting as early as February, per a report from MUFG Bank. By March 2025, the rupee is expected to drop to ₹85.20, according to MUFG. 

Important Market Indicators 

• NDF rate for one month: ₹85.04 
• Premium for onshore forwarding: 18.50 paisa 
• Index of dollars: 106.5 
• A barrel of Brent crude costs $73.5. 
• Yield on US 10-year bonds: 4.28% 
• Yield on India's 10-year bonds: 6.75% 

The opinions of foreign institutional investors (FIIs) remain divided. According to NSDL data, on December 10, FIIs made net purchases of $64.4 million in Indian bonds and $220 million in Indian stocks.

The Role of the RBI and its Prospects 

The RBI's active participation in the foreign currency market is expected to keep the rupee's depreciation to a minimum. However, mounting concerns about global economic trends and India's shifting monetary policy environment might put more pressure on the rupee in the near future. 
As the rupee navigates choppy waters, traders and policymakers alike are bracing for a period of greater volatility, with the RBI's interventions serving as a stabilising force in an otherwise uncertain market.