Indian rupee dips; implied INR yield on overnight FX swap climbs above 10%

Asian currencies were mostly weaker on the day, with the offshore Chinese yuan down 0.1%

By Reuters

Published: Mon 16 Dec 2024, 10:18 AM

The Indian rupee weakened slightly on Monday, tracking weakness in regional peers, while the dollar-rupee overnight swap rate jumped on the back of cash dollar inflows and tight rupee liquidity, pushing up the implied rupee yield on overnight swaps above 10%.

The rupee was at 84.8250 as of 10:00 a.m. IST, down 0.04% from its close at 84.7875 on Friday.

Advertising

Asian currencies were mostly weaker on the day, with the offshore Chinese yuan down 0.1% after data showed that retail sales in the country were weaker than expected in November. The dollar index was little changed at 106.8.

Stay up to date with the latest news. Follow KT on WhatsApp Channels.

Meanwhile, the dollar-rupee overnight swap rate extended its ongoing climb and rose to 1.20 paisa, pushing up the implied rupee yield on overnight FX swaps above 10%.

Cash dollar inflows, alongside tight INR and flush USD liquidity in the banking system, on the back of recent spot dollar sales by the central bank, prompted the rise in the overnight swap rate, traders said.

Dollar-rupee far forward premiums slipped, with the one-year implied yield down 2 basis points at 2.16%, pressured by a rise in U.S. bond yields ahead of the closely watched Federal Reserve policy decision later this week.

The one-year U.S. Treasury yield was up 4 basis points at 4.28%.

The U.S. central bank is widely expected to cut rates, with investors watching out for any hawkish revisions to policymakers' future interest rate projections.

The odds of a 25-basis point rate cut by the Fed are currently at 95%, according to CME's FedWatch tool.

"The dollar is currently defying seasonal trends for December weakness and we doubt that the FOMC (Federal Open Market Committee) needs to prove itself a negative event risk," ING Bank said in a note.

ALSO READ: