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INR: CNY Weakness Weighs on Rupee, RBI Intervene to Prevent Further Slide

INR
IndiaEM BulletBulletAPACEmerging Market News

The rupee hit a fresh low overnight, weighed by broad dollar strength and a rise in USD/CNH to a 12-month high during the APAC session. A fade in the greenback towards the start of European hours ultimately resulted in USD/INR ending the session close to unchanged, with Reuters reporting that the RBI sold dollars in spot via state-run banks and conducted buy/sell swaps in mid-tenor forwards to support the currency as well. Central bank intervention is becoming an increasingly common theme – particularly given the increasing pressure on the rupee since the US election – with officials aiming to cap INR downside while keeping vols muted.

  • Concerns about India's slowing economic growth, outflows from local equities and weakness in broader Asia FX have all contributed to INR weakness. This has seen 1-month implied vols spike above 3% - reaching ~4 month highs in the process – while option markets continue to hedge against further rupee weakness ahead (as evidenced by the USD/INR vol skew shifting further in favour of calls).
  • The RBI meet later in the week and while the central bank moved to a neutral stance at its previous meeting, only a minority of analysts expect a rate cut at this juncture. As a reminder, RBI Governor Das sounded hawkish in November when he said the central bank will consider its job unfinished until inflation moderates around its 4% target on a durable basis. Our full preview for Friday’s decision will be released later in the week.
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The rupee hit a fresh low overnight, weighed by broad dollar strength and a rise in USD/CNH to a 12-month high during the APAC session. A fade in the greenback towards the start of European hours ultimately resulted in USD/INR ending the session close to unchanged, with Reuters reporting that the RBI sold dollars in spot via state-run banks and conducted buy/sell swaps in mid-tenor forwards to support the currency as well. Central bank intervention is becoming an increasingly common theme – particularly given the increasing pressure on the rupee since the US election – with officials aiming to cap INR downside while keeping vols muted.

  • Concerns about India's slowing economic growth, outflows from local equities and weakness in broader Asia FX have all contributed to INR weakness. This has seen 1-month implied vols spike above 3% - reaching ~4 month highs in the process – while option markets continue to hedge against further rupee weakness ahead (as evidenced by the USD/INR vol skew shifting further in favour of calls).
  • The RBI meet later in the week and while the central bank moved to a neutral stance at its previous meeting, only a minority of analysts expect a rate cut at this juncture. As a reminder, RBI Governor Das sounded hawkish in November when he said the central bank will consider its job unfinished until inflation moderates around its 4% target on a durable basis. Our full preview for Friday’s decision will be released later in the week.