FX.co ★ Indian Rupee Pulls Back Amid Hedging and RBI Swap

The Indian rupee experienced a slight decline, settling around 90.5 per dollar, as it halted gains from the previous session. This shift occurred amid corporate demand for dollars and in anticipation of the Reserve Bank of India's (RBI) upcoming swap operation. Corporations increased their purchases of dollars to hedge against import costs and other international financial obligations. Concurrently, investors kept a close eye on the RBI's $10 billion three-year dollar-rupee swap scheduled for later in the day, a factor that could significantly impact liquidity and trading dynamics. Despite these fluctuations, the rupee continues to find some support from the US-India trade agreement, which has reduced US tariffs on Indian goods from 50% to 18%, while retaining specific protections for certain agricultural imports. However, critical details regarding the timeline, product coverage, and enforceability remain unverified. Analysts believe this trade deal could bolster exports in sectors like textiles, apparel, and industrial goods, although India's trade deficit might restrict any immediate advancement of the rupee. Moving forward, the RBI is anticipated to keep its policy repo rate steady at 5.25%, following a series of reductions totaling 125 basis points set to occur by 2025.