Indian rupee slips on-week, traders reckon 'line in sand' near 96/USD will hold

Mumbai: The Indian rupee slipped during the week, driven by expectations of increased global interest rates, while traders monitored oil prices and central bank actions, anticipating the currency may hold around 96 dollars. The Indian rupee closed at 95.8750 per dollar, marking a 0.3% decline for the week. The US Federal Reserve and the Bank of Japan raised interest rates this week, joining other central banks in their rate hikes due to inflationary risks stemming from the Iran war.

Higher borrowing costs negatively impact risk assets, including emerging market currencies and equities.

Oil prices reached near four-month highs earlier in the week but have since fallen following reports that Saudi Arabia aims to restore half of the capacity of its East-West oil pipeline within days due to ongoing Middle East hostilities. "The next key question for investors is whether the Fed's policy stance will prompt a similar response from Asia," said DBS in a note. "We expect India and the Philippines to raise rates next quarter, alongside increased odds for Malaysia, while others monitor evolving risks."

The prospect of higher rates supports the rupee, but traders noted that the currency's depreciation toward the 96 mark has elicited strong central bank intervention in recent trading sessions. The Reserve Bank of India "is defending 96 quite sternly, making it a line in the sand for the moment," remarked a trader at a state-run lender.

Asian currencies were mixed, while regional stocks gained. India's benchmark Nifty 50 index rose 0.3%. India's $2.3 billion initial public offering on the National Stock Exchange of India was fully subscribed on the second day of bidding, buoyed by robust demand from foreign and domestic institutional investors. Foreign portfolio inflows support the rupee.