Indian rupee weakens, swap rates rise

The Indian rupee weakened slightly on Monday, following the trend of other Asian currencies. The dollar-rupee swap rate increased due to cash dollar inflows and tight rupee liquidity, pushing the implied rupee yield on swaps above 10 per cent. As of 10:00 am IST, the rupee was trading at 84.8250, a 0.04 per cent decline from its previous close of 84.7875.

The dollar-rupee overnight swap rate continued to climb, reaching 1.20 paisa and pushing the implied rupee yield on overnight FX swaps above 10 per cent.

This increase was driven by cash dollar inflows and ample USD liquidity in the banking system, following recent spot dollar sales by the central bank.

Meanwhile, far forward premiums for the dollar-rupee pair decreased, with the one-year implied yield dropping 2 basis points to 2.16 per cent due to rising US bond yields ahead of the upcoming Federal Reserve policy decision.

The one-year US Treasury yield rose by 4 basis points to 4.28 per cent. The Federal Reserve is anticipated to lower rates, and investors are monitoring for any hawkish changes to future interest rate forecasts.

Attribution: Reuters

Subediting: M. S. Salama