India central bank's large rate cut squeezes forward premiums, leaves rupee vulnerable, analysts say
By Nimesh Vora and Jaspreet Kalra
MUMBAI (Reuters) -The Reserve Bank of India's surprise outsized rate cut last week will leave the rupee vulnerable to further depreciation by pressuring already depressed foreign exchange forward premiums, several analysts said on Monday.
The rupee has underperformed its Asian peers in 2025 amid weak capital flows. A narrowing interest rate differential — with the U.S. Federal Reserve moving slower than the RBI in cutting rates — suggests the Indian currency may continue to lag.
MARKET REACTION
The 1-month U.S. dollar/rupee forward premium — typically more sensitive to liquidity conditions — fell to 7.5 paisa, its lowest level since November.
Meanwhile, the 1-year premium, which is more responsive to rate differential between the U.S. and India, declined to 1.5250 rupees, marking its lowest level in nearly a year.
GRAPHIC:
WHY IT'S IMPORTANT
A drop in dollar/rupee forward premiums makes the rupee less attractive for carry trades, and diminishes the incentive for exporters to hedge future receivables.
At the same time, it raises the likelihood that importers—who typically hedge near-term payment obligations—will step up their hedging activity.
The decline in premiums - a less favourable rate differential between the U.S. and India - could leave the rupee open to sharper depreciation.
CONTEXT
Against the backdrop of benign inflation and the need to support growth, the Reserve Bank of India last Friday delivered a larger-than-expected 50 basis point rate (bps) cut, exceeding the 25 bps anticipated by economists.
In a further easing move, the central bank slashed the cash reserve ratio for banks.
KEY QUOTES
"One thing the rupee had going for it is that it offered attractive carry ... with the 50-bps rate cut from the RBI, carry attraction has been reduced," Mitul Kotecha, head of FX and EM macro strategy Asia at Barclays, adding that in an environment where investors are again focussed on carry, the rupee's appeal has been diminished.
Falling premiums can be a "mild added headwind" for the rupee amid globally elevated yields, Dhiraj Nim, FX strategist at ANZ Research, said, and pointed out that if India growth data weaken, there could be scope for one more rate cut.
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
New York Post
3 hours ago
- New York Post
British tycoon Mike Lynch's sunken Bayesian superyacht raised towards surface ahead of final lift — 10 months after tragedy
Salvage experts winched Mike Lynch's sunken superyacht towards the surface on Friday, 10 months after it went down off the coast of Sicily, killing the British tech tycoon, his teenage daughter and five others. The vessel is scheduled to be lifted out of the water in the final phase of the recovery on Saturday, TMC Marine, the company leading the salvage operation, said. 'Accelerated progress in salvage works off the coast of northern Sicily mean that all preparations are now nearing completion, ahead of the delicate lifting procedure,' the statement said. 7 Officials recover the 'Bayesian' yacht off the coast of Sicily on June 20, 2025. REUTERS The work was briefly halted last month after the death of a diver involved in the operation. The 184-foot Bayesian was moored off the small port of Porticello, near Palermo, in August last year when it sank during a sudden storm. The yacht was vulnerable to violent winds and was probably knocked over by gusts of more than 73 miles per hour, an interim UK report said last month. The recovery process has been made easier after the vessel's 236-foot mast was detached using a remote-controlled cutting tool and placed on the seabed on Tuesday. The hull of the yacht has been supported by a specially designed steel wire lifting arrangement which is, in turn, attached to a floating lifting asset. 7 The vessel is scheduled to be lifted out of the water in the final phase of the recovery on Saturday. AFP via Getty Images 7 The measurements of the Bayesian superyacht. NY Post Composite 7 Surveillance video captured the yacht in a storm before it sank on Aug. 19, 2024. The vessel is between two barges supplied by Hebo Maritimeservice, a Dutch specialist salvage company. The salvage experts are now reinforcing the cables because the yacht will be heavier once pulled out of the water, a source at the Italian coast guard said. The yacht is expected to be transported to the nearby port of Termini Imerese on Monday and handed over to the authorities who are investigating the tragedy. 7 Mike Lynch and his daughter Hannah Lynch. FAMILY HANDOUT 7 Morgan Stanley International Chairman Jonathan Bloomer and his wife Judy Bloomer. FAMILY HANDOUT 7 Chef Recaldo Thomas. @ Lynch's daughter Hannah, lawyer Chris Morvillo and his wife Neda, banker Jonathan Bloomer and his wife Judy, and chef Recaldo Thomas were killed when the yacht sank. Nine other crew members and six guests were rescued.
Business Upturn
5 hours ago
- Business Upturn
Nifty 50 top losers this week (June 21): Tata Motors, Adani Ports, Bajaj Finance, Dr. Reddy's, Adani Enterprises and more
By Aman Shukla Published on June 21, 2025, 09:26 IST Indian stock markets ended the week on a positive note, with benchmark indices posting solid gains. Both the Nifty 50 and Sensex rose over 1.5% for the week, recovering losses from the previous week. Several major stocks underperformed this week, with Tata Motors, Adani Ports and Bajaj Finance leading the losses. Let's take a closer look at the top 10 losers of the Nifty 50 this week, according to Trendlyne. Nifty 50 Top Losers This Week Tata Motors closed at ₹676.2, down 5.0% for the week despite a modest daily gain of 0.6%. Adani Ports and Special Economic Zone ended at ₹1349.3, falling 4.0% over the week. Bajaj Finance settled at ₹905.0, recording a weekly loss of 3.0% . Dr. Reddy's Laboratories closed at ₹1325.3, down 2.7% this week. Adani Enterprises ended the week at ₹2448.4, registering a 2.4% decline. Sun Pharmaceutical Industries slipped 1.3% to finish at ₹1665.1. Bajaj Finserv closed at ₹1986.2, falling 1.2% during the week. Bajaj Auto declined 1.1% , ending the week at ₹8371.0. Nestle India recorded a 0.7% drop to settle at ₹2360.4. Hindustan Unilever closed the week at ₹2306.2, down 0.6%. Disclaimer: The information provided is for informational purposes only and should not be considered financial or investment advice. Stock market investments are subject to market risks. Always conduct your own research or consult a financial advisor before making investment decisions. Author or Business Upturn is not liable for any losses arising from the use of this information. Ahmedabad Plane Crash Adani enterprisesAdani PortsBajaj FinanceDr Reddy'sNiftyTata Motors Aman Shukla is a post-graduate in mass communication . A media enthusiast who has a strong hold on communication ,content writing and copy writing. Aman is currently working as journalist at
Business Upturn
5 hours ago
- Business Upturn
Nifty 50 top gainers this week (June 21): Mahindra & Mahindra, Trent, Bharti Airtel, Eicher Motors and more
By Aman Shukla Published on June 21, 2025, 09:20 IST Indian equity markets wrapped up the week on a positive note, with both benchmark indices—Nifty 50 and Sensex—posting weekly gains of over 1.5%. Friday's strong close helped recover ground lost in the previous week. Several Nifty 50 stocks posted impressive weekly gains, with Mahindra & Mahindra, Trent and Bharti Airtel leading the charge. Let's take a look at the top gainers of Nifty 50 this week, as per Trendlyne data. Top Stock Gainers This Week (Ending June 21, 2025) Mahindra & Mahindra closed at ₹3,184.40, gaining 5.9% during the week. Trent ended at ₹5,897.50, up 5.5% over the past five trading sessions. Bharti Airtel settled at ₹1,936.70, registering a weekly gain of 5.2%. Eicher Motors finished the week at ₹5,525.00, marking a 3.9% increase. Bharat Electronics rose 3.6% to close at ₹408.30. HDFC Life Insurance ended at ₹779.00, up 3.5% this week. Asian Paints gained 3.2% to close at ₹2,285.70. SBI Life Insurance moved up 3.2% to finish at ₹1,810.90. Maruti Suzuki India ended the week 3.1% higher at ₹12,791.00. Kotak Mahindra Bank posted a 3.0% gain, closing at ₹2,169.80. Disclaimer: The information provided is for informational purposes only and should not be considered financial or investment advice. Stock market investments are subject to market risks. Always conduct your own research or consult a financial advisor before making investment decisions. Author or Business Upturn is not liable for any losses arising from the use of this information. Ahmedabad Plane Crash Bharti AirtelEicher MotorsMahindra & MahindraTrent Aman Shukla is a post-graduate in mass communication . A media enthusiast who has a strong hold on communication ,content writing and copy writing. Aman is currently working as journalist at
