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

The Indian rupee gained ground this week, ending at 95.3775 per dollar, up 0.2 percent from Thursday's close of 95.54. The currency rebounded from early losses in the afternoon as dollar inflows from a special deposit window spurred stop-losses and unwinding of bets on a weaker rupee. Over the week, the rupee climbed 0.3 percent against the dollar.

The Reserve Bank of India's discounted non-resident dollar deposit scheme closes on Monday, and bankers noted the central bank's decision to offer lenders greater flexibility in accessing its swap facility should prevent excessive dollar liquidity from remaining in the banking system for too long. Initial importer demand for dollars weighed on the local currency early Friday, but flows ahead of the MSCI index rebalancing, set for August 31, and some state-run bank offers proved to be a sharp reversal for the pair.

MSCI equity index rebalancing is also anticipated to boost the rupee. Asian currencies traded mixed, with the dollar relatively stable ahead of Federal Reserve Chair Kevin Warsh's speech at the Jackson Hole event later on Friday. Market participants are eager for clarity on Warsh's stance towards persistent inflation, the Fed's policy approach to addressing it, and whether he can alleviate concerns arising from recent bond-market turbulence.

His reluctance to provide forward guidance has contributed to investor uncertainty. Recent data hints at elevated inflation, but central bank observers expect Warsh to present a neutral stance. A hawkish surprise from Warsh could strengthen the dollar, pressuring the rupee, while a dovish speech would help ease pressure on the local currency.