By Sethuraman N R
MUMBAI, May 15 (Reuters) - The Indian rupee sank to a
six-week low against the U.S. dollar on Monday as interest rate
differentials between the U.S. and India narrowed, while forward
premiums hit their lowest in three months.
The rupee closed at 82.2950 to the dollar, down 0.16% from
82.1625 in the previous session. The rupee had lost 0.4% last
week, weighed by a rise in the dollar index.
Asian currencies, barring the yuan, fell on Monday.
The dollar, supported by safe-haven flows, hit its highest
level in a month versus its major peers.
The U.S. dollar has seen a break out from its long
consolidating level and the interest rate differentials between
India and the United States is narrowing, said Ritika Chhabra,
quant macro srategist at Prabhudas Lilladher.
The narrowing rate differentials disincentivise carry trade,
putting pressure on the rupee, Chhabra added.
Carry reflects the interest rate differentials between two
currencies.
Chhabra said the chances of the rupee depreciating further
were limited, and that if it falls below 82.50, the Reserve Bank
of India will intervene, given the cushion available on forex
reserves.
India's foreign exchange reserves rose for a
second consecutive week to hit an over 11-month high of $595.98
billion in the week ended May 5.
The rupee was also hurt on Monday by dollar outflows, two
traders said.
Meanwhile, the one-year implied USD/INR yield dropped to
2.04% due to the rise in U.S. yields and as India's retail
inflation eased to a 19-month low of 4.7% in April.
Local bond yields were down for most of Monday's session, as
the lower-than-expected retail inflation print cemented bets
that the RBI is unlikely to raise rates further in the current
tightening cycle.
When the forward premiums fall, exporters avoid hedging,
which puts further pressure on the rupee, Chhabra added.
(Reporting by Nallur Sethuraman in Mumbai; Editing by Varun H
K)
Messaging: nallur.sethuraman.thomsonreuters.com@reuters.net))
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