Advertisement

INDIA RUPEE-Rupee, premiums dip as Fed pushes back against rate cut expectations

By Nimesh Vora

MUMBAI, Dec 15 (Reuters) - The Indian rupee declined against the dollar on Friday and forward premiums fell after the U.S. Federal Reserve forecasts indicated no rate cuts next year.

The rupee was quoting at 82.6425 per U.S. dollar by 09:54 IST, down from 82.46 in the previous session.

The Fed increased rates by 50 basis points (bps), along expected lines, while the statement kept the reference to the ongoing rate increases being appropriate. The median dot in the Summary of Economic Projections for end-2023 shifted 50 bps higher to 5.125%.

Additionally, the Fed lifted its year-end 2024 and 2025 funds rate projections - members see the first cut in 2024.

This compares to market expectations that the Fed rate will peak around the middle of next year, at 4.75-5%, and that rate cuts will follow.

For the rupee, the Fed outcome does not provide the trigger for a sustained move in either direction, Srinivas Puni, managing director at QuantArt Market Solutions, said in comments in an email.

"The INR forward premium could face some more downward pressure as short-term U.S. rates could remain elevated due to the Fed stance on smaller-but-longer rate hikes."

The USD/INR 1-year forward implied yield fell about 3 bps to 1.92%. The November forward premium dropped to 1.52 rupees from 1.5450 rupees.

Asian currencies were down 0.3% to 0.5%, weighed by the Fed outlook and the weak Chinese data.

China's economy lost more steam in November with factory output and retail sales both missing forecasts and clocking their worst readings in six months, hobbled by virus curbs.

The focus turns to the European Central Bank and the Bank of England policy decisions later in the day. Both are expected to raise rates by 50 bps. (Reporting by Nimesh Vora; Editing by Janane Venkatraman)