Indian rupee ends a tad higher, interbank paying interest boosts forward premiums

MUMBAI: The Indian rupee closed marginally stronger on Thursday, comforted by strength in regional currencies while elevated demand to buy dollars at the daily reference rate kept gains in check.

The Indian rupee closed at 90.9050 per U.S. dollar, up slightly from its close at 90.9475 in the previous session.

Dollar demand at the reference rate, elevated due to maturity of contracts in the non-deliverable forwards market, was met with decent selling interest from interbank participants, a trader at a state-run bank said.

The reference rate is a benchmark used to settle contracts and often attracts concentrated dollar buying or selling.

The market could be positioning for some anticipated inflows while taking comfort in the central bank’s presence around the 91 per dollar mark, the trader said.

Earlier in the week, the central bank had likely intervened to help the Indian rupee avert a decline past the psychologically important level.

The dollar index was steady at 97.7 while the Chinese yuan climbed to a near three-year high.

Premiums rise

Dollar-Indian rupee forward premiums rose across most tenors, with the 1-month forward premium drifting higher to 15 paisa while the 1-year implied yield rose 2 bps to 2.65%.

Traders pointed to a broad-based inclination towards paying mid-to-far tenors among interbank participants.

Exporters should take advantage of the recent rise in forward premiums to take on partial hedges while importers are advised to keep buying major dips on spot USD/INR, said Anil Bhansali, head of treasury at Finrex Treasury Advisors.

Lingering worries about escalating geopolitical tensions between the U.S. and Iran kept oil prices elevated, ahead of a third round of talks between the two countries.

U.S. strikes on Iran could cause a sudden spike in oil prices by $5–10 per barrel and the price would remain highly volatile if tensions persist, ANZ said in a note.