MUMBAI: The rupee was trapped in a tight range against a firm dollar on Wednesday, as traders stayed away from making big bets amid little clarity about the size of a widely expected interest rate hike from the central bank.
The partially convertible rupee was slightly weaker at 78.74 per dollar, as of 0540 GMT, having firmed up to 78.68 at the open. The currency had closed at 78.7125 on Tuesday.
“No one is going to take a big position ahead of the three-day policy meeting starting Wednesday,” a trader at a private bank said.
“If the Reserve Bank of India (RBI) hikes by 50 basis points (bps), the rupee may stay around the current level, but if it hikes by 35 bps or less, the rupee may even drop back down to 80 per dollar.”
The central bank’s monetary policy committee will announce its decision on Friday. A hike is guaranteed but there has been no guidance on its size, and a Reuters poll came up with no consensus.
The RBI has raised rates twice since May to catch up with its global peers and get ahead of soaring inflation at home.
Meanwhile, the trader said a part of importer flows that did not hit the market on Tuesday would be done in this session, potentially weighing on the rupee.
The greenback’s resurgence and concerns over India’s trade deficit hitting a record high in July also held the rupee back on Wednesday, after a four-session winning streak on robust inflows.
The dollar index, which measures the currency against six major peers, climbed 1% overnight after a trio of US Federal Reserve officials signalled there would be no let-up in tightening rates to tame high inflation.
US.benchmark yields rallied after their comments, with yields on India’s 10-year paper matching the move to rise 9 basis points to 7.2295%.