FX.co ★ Rupee Slips on Debt Supply and Policy Tensions

The Indian rupee weakened to approximately 90.2 against the US dollar, a decline attributed to continuous foreign outflows and prevailing policy uncertainties. Despite the Bank of India's efforts to temper speculative long-dollar positions through interventions last week, the impact was minimal, leaving the rupee susceptible to further devaluation. Additional pressure arose from domestic debt markets, as Indian states outlined plans to borrow INR 5 trillion in the first quarter, alongside the federal government's issuance of over INR 3 trillion, marking the most substantial quarterly supply on record. This has driven yields higher, thereby widening the spread between state and central government debt. Traders are keeping a close eye on the Reserve Bank of India's liquidity maneuvers, including anticipated bond purchases totaling INR 500 billion on January 12 and January 22. Meanwhile, market sentiment experienced further strain from the escalating tensions between US President Donald Trump and Federal Reserve Chair Jerome Powell, exacerbating concerns over global monetary policy stability.