Indian rupee nudges up on RBI intervention; investors eye inflation data

Mumbai witnessed a slight rise in the Indian rupee on Thursday, as it hovered between concerns about the Middle East conflict and the effects of consistent central bank interventions. The Indian rupee opened the day at 95.33 per U.S. dollar, marking a 0.1% increase from its previous closing rate of 95.4350. State-run banks' dollar sales, likely on behalf of the Reserve Bank of India, helped cushion the currency from further declines, but uncertainty surrounding upcoming U.S. and India inflation data, as well as rising oil prices, limited the potential for significant gains.

The Reserve Bank of India has frequently intervened in the foreign exchange market throughout August, which has played a crucial role in stabilizing the rupee. After a recent dip to record lows, the currency has shown resilience, with a recent high of 96.96 per U.S. dollar in May. Trading in such a volatile market remains challenging, with traders predicting a higher probability of the rupee weakening to 95.80 rather than strengthening to 95.

As the day progressed, the focus shifted towards the release of inflation data. India is expected to report a retail inflation rate of 4.5% for July, according to a Reuters survey. Economists at BofA Global Research anticipate core inflation, excluding volatile food and energy prices, to stay below 3.8%. BofA analysts highlight that while core inflation may remain stubborn due to rising service prices (recreation, restaurants, and education) being offset by lower gold prices, monitoring the general trend of inflation will be crucial.

Across the Atlantic, U.S. data is anticipated to reveal a modest 0.1% increase in consumer prices in July, following a 0.4% decline in June, as per a Reuters survey. Market expectations suggest a 50% chance of a September interest rate hike by the Federal Reserve and a 50 basis point hike by the Reserve Bank of India over the next year.