Indian rupee slips with traders clinging to equity cues, awaiting inflation data

Mumbai witnessed a decline in the Indian rupee on Thursday, as traders shifted their focus to equity market cues, awaiting India’s inflation data later in the day. The rupee closed at 94.0425 per dollar, marking a 0.4% decrease from its previous close of 93.69. Foreign portfolio inflows, which supply dollars into the rupee market, initially bolstered the currency, pushing it to a peak of 93.62 in early trading – its highest level since April.

However, the gains were short-lived as oil prices surged and domestic stocks retreated, trading flat for the day.

The strengthening of the rupee was also impacted by strong dollar bids from a state-run lender and a significant presence of dollars offered by other public sector banks near the 94 mark. The rising oil prices pose a threat to India's economic growth and could lead to higher inflation. Traders are closely monitoring the upcoming October consumer inflation data, set to be released at 4 p.m. IST on Thursday.

Analysts predict that the data will show the headline Consumer Price Index (CPI) rising to 5.93%, approaching the upper limit of the Reserve Bank of India’s (RBI) inflation tolerance band.

The RBI is expected to tighten monetary policy multiple times over the next year, with economists polled by Reuters estimating that three more 25 basis points (bps) hikes could be implemented by the RBI during the next three meetings. This would raise the terminal policy rate to 6.25%, compared to around 100bps of tightening currently priced in the Indian rupee overnight index swap (OIS) market over the next 12 months.

Higher policy rates increase the cost of betting against the rupee, discouraging speculative positioning. Improved foreign portfolio inflows have contributed to a more optimistic sentiment toward the local currency, with bearish bets reaching their lowest levels since June 2025, according to a Reuters poll.