Rupee strengthens by 7 paise to 84.64 against US dollar ahead of RBI policy decision

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The Indian rupee appreciated by 7 paise to 84.64 against the US dollar in early trade on Friday, as investor sentiment was buoyed by fresh foreign fund inflows. However, a muted trend in domestic equities put a cap on the rupee's gains.

At the interbank foreign exchange market, the rupee opened at 84.66 and traded within a narrow range, touching 84.64 against the greenback, marking a gain of 7 paise from its previous close. On Thursday, the rupee had recovered from its all-time low level and settled 4 paise higher at 84.71 against the US dollar.

Forex traders noted that while the rupee received support from foreign inflows, investors are awaiting signals from the Reserve Bank of India (RBI) monetary policy announcement later today. The RBI's decision, which is expected to address the delicate balance between inflation and growth, will be closely monitored by market participants.

According to Anil Kumar Bhansali, Head of Treasury and Executive Director at Finrex Treasury Advisors LLP, the Indian rupee is expected to open slightly stronger after the central bank intervened by selling dollars at the 84.75 level, stabilising the currency within the 84.70-84.75 range. Bhansali anticipates that the rupee's range will be between 84.60 and 84.80 in the near term, especially with the RBI's monetary policy decision on the horizon.

The RBI's high-level panel began deliberations on the bi-monthly monetary policy on Wednesday, with most analysts expecting no change in interest rates, given that retail inflation remains above the central bank's upper tolerance level. However, there is speculation that the RBI may surprise markets with a rate cut. If the central bank does reduce rates, it would mark the first such move since May 2020.

Meanwhile, the dollar index, which measures the greenback's strength against a basket of six major currencies, was trading marginally higher by 0.06 per cent at 105.78. In global oil markets, Brent crude, the benchmark for global oil prices, slipped by 0.04 per cent to USD 72.06 per barrel.

On the domestic equity front, the Sensex was trading 34.02 points, or 0.04 per cent, higher at 81,799.88 points, while the Nifty rose by 6.85 points, or 0.03 per cent, to 24,715.25 points. Foreign Institutional Investors (FIIs) were net buyers in the capital markets on Thursday, purchasing shares worth Rs 8,539.91 crore, as per exchange data.

PTI reports that while market participants are closely watching the RBI's policy decision, the overall market sentiment remains cautious, with the rupee expected to fluctuate in the short term.

(With inputs from PTI)