Indian rupee languishes at six-week low ahead of Fed outcome, RBI limits losses

Mumbai witnessed the Indian rupee reaching its lowest point in six weeks as the value of the currency plummeted to levels not seen since mid-July. The primary driver behind this decline was the strong demand for the U.S. dollar from Indian companies, coupled with anticipations of a rate hike by the Federal Reserve later in the day.

Despite a slight moderation in oil prices, which remained above $100 per barrel, the Reserve Bank of India's intervention proved crucial in maintaining the rupee's stability amidst the downward pressure from various fronts. The Indian rupee closed in a flat position at 95.9550 per dollar, marking its weakest level since July 27.

The Reserve Bank of India's continuous interventions have managed to keep the rupee above the 96 per dollar threshold in recent days. However, regional currencies, including the Indian rupee, have generally lagged behind, with the U.S. dollar index nearing multi-week peak levels. Investors keenly await the Federal Open Market Committee (FOMC) statement and the press conference of Fed Chair Kevin Warsh to decipher whether the central bank will perceive the rate hike as satisfactory or anticipate additional tightening measures.

Analysts forecast a 92.5% likelihood of a 25-basis-point increase when the Fed announces its decision later on the same day, while swap markets have incorporated roughly 60 basis points of rate hikes for the rest of the year. There is a waiting game for the FOMC, with many expecting only a minimum necessary modification to their statement, which will likely note the hike as a response to inflation returning to 2%.

Yet, the guidance on future hikes or the criteria for further increases may be conspicuously absent, according to analysts at Goldman Sachs.