Indian rupee gains this week as dollar supply surges ahead of deposit window's close

Mumbai: The Indian rupee gained ground this week as a surge in dollar liquidity preceded the closure of a special deposit window, data showed on Friday. The currency closed at 95.3775, marking a 0.2% increase from Thursday's close of 95.54. The rupee reversed early losses during the afternoon session as dollar inflows due to deposit-related activities triggered stop-loss mechanisms and unwound positions anticipating a weaker rupee.

Over the week, the currency rose 0.3% against the dollar. The Reserve Bank of India's discounted non-resident dollar deposit scheme concludes on Monday, and bankers noted that the central bank's decision to grant lenders more flexibility in accessing its swap facility should prevent an excessive accumulation of dollar liquidity in the banking system for an extended period.

Early in Friday's trading session, month-end importer dollar demand weighed down the local currency. However, flows ahead of the MSCI index rebalancing on August 31 provided a significant boost to the rupee, traders indicated. MSCI equity index rebalancing is scheduled for August 31, and flows related to this event contributed to the currency's strengthening, according to bankers.

Asian currencies traded mixed, with the dollar holding steady ahead of Federal Reserve Chair Kevin Warsh's speech at the Jackson Hole economic conference later that day. Market participants are eagerly awaiting Warsh's insights into his stance on persistent inflation, the Federal Reserve's approach to addressing it, and whether he can alleviate concerns stemming from recent bond-market volatility.

Warsh's reluctance to provide forward guidance has added to investor uncertainty. Recent data point to elevated inflation, but central bank observers anticipate Warsh to maintain a neutral tone. A hawkish remark from Warsh could bolster the dollar and exert pressure on the rupee, while a dovish statement might alleviate pressure on the local currency, noted Amit Pabari, managing director at CR Forex based in Mumbai.