By Jaspreet Kalra
MUMBAI (Reuters) – The Indian rupee was flat on Monday, wedged between dollar sales by state-run banks and likely portfolio outflows, with analysts citing the greenback’s lack of direction as among the factors keeping rupee volatility muted.
The rupee was at 88.7250, nearly unchanged from its closing level on Friday. Its one-month implied volatility, a gauge of future expectations, stood at 3.3%, hovering near its lowest since March.
The rupee’s volatility has been contained despite a clutch of headwinds confronting the currency, including steep U.S. tariffs on Indian exports and spillovers from tighter immigration policy.
The currency has declined nearly 3.5% this quarter but options markets data shows that traders are not fretting over sharp swings.
“This could be a result of range-bound dollar moves and market expectations for dollar softness reducing the possibility of larger rupee moves,” analyst at BofA Global Research said in a note.
Most analysts and investors expect the dollar to decline gradually on the back of market expectations of policy easing by the U.S. Federal Reserve. The dollar is down nearly 10% against a basket of peers on the year so far.
Frequent interventions by the Reserve Bank of India have also helped limit market speculation on the local currency, the note said.
However, reducing volatility further from already low levels would hinder the rupee’s defence as it would offer traders a cheaper deal on options wagering on the rupee’s decline, the note added.
On the day, traders pointed to intermittent dollar sales from state-run banks that helped limit the rupee’s downside. Foreign banks were spotted bidding for dollars, the traders added.
Elsewhere, the dollar index was down 0.2% at 97.95. Most Asian currencies strengthened, with the Korean won leading with a 0.7% rise.
India’s benchamrk equity indexes, the BSE Sensex and Nifty 50 were up 0.4% each, snapping a six-day streak of losses.
(Reporting by Jaspreet Kalra; Editing by Janane Venkatraman)
