Rupee logs weekly decline; traders expect losses to be capped near 96 against USD

The Indian rupee logged a weekly decline on Friday, hurt by expectations of higher global interest rates, while traders kept an eye on oil prices and said that central bank intervention would limit the currency's downside around 96 per dollar.

The rupee ended at 95.8750 per dollar, up modestly on the day but logged a 0.3% week-on-week fall.

The US Federal Reserve and the Bank of Japan raised interest rates this week, joining other central banks in hiking rates as the Iran war fans inflationary risks. Higher benchmark borrowing costs are negative for risk assets including emerging market currencies and equities.


Oil prices climbed to near four-month highs earlier in the week but have since cooled on reports that Saudi Arabia was seeking to restore about half the capacity of its East-West oil pipeline within days amid ongoing hostilities in Middle East.

"The next key question for investors is whether the Fed's policy stance will prompt a similar response from Asia," DBS said in a note. "We expect India and Philippines to raise rates next quarter, apart from increased odds for Malaysia, while others monitor evolving risks."

The prospect of higher rates is supportive for the rupee, although traders said that the currency's depreciation towards the 96 mark has drawn firm central bank intervention over recent trading sessions.

The Reserve Bank of India "is defending 96 quite sternly, making it a line in the sand for the moment," a trader at a state-run lender said.

Elsewhere, Asian currencies were mixed, while regional stocks gained. India's benchmark Nifty 50 index rose 0.3%

The National Stock Exchange of India's $2.3 billion initial public offering was fully subscribed on the second day of bidding, driven by strong demand from foreign and domestic institutional investors. Foreign portfolio inflows are supportive of the rupee.