Indian Rupee rallies, records best single-day gain in 7 months
What's the story
The Indian Rupee staged a remarkable recovery today, bouncing back from an all-time low to post its best single-day gain in more than seven months.
The currency closed at 86.36 against the US Dollar, up 0.3% and beating its previous best single-day climb since June 3, 2024.
The recovery was mainly supported by a weaker US Dollar and strong Dollar sales by foreign banks.
Recovery drivers
Factors contributing to INR's recovery
The Rupee's recovery was aided by the Dollar index's retreat from a two-year high and Dollar sales by at least two large foreign banks.
These sales were possibly made on behalf of custodial clients, traders said.
However, despite today's gains, the Rupee has depreciated around 3% since Donald Trump's US Presidential election victory in November.
This triggered a surge in the US Dollar value while concerns about India's slowing growth exerted additional pressure on the local currency.
Strategy
RBI's response to currency depreciation and inflation concerns
In light of the Rupee's sharp depreciation, a few analysts are pushing back their expectations of interest rate cuts by the Reserve Bank of India (RBI).
This is because they fear a weaker currency could fuel inflation concerns.
The central bank is also tipped to handle its foreign exchange reserves more prudently in a bid to contain market volatility amid persistent headwinds.
Global context
Rupee's performance amid global currency trends
Today, the Rupee got some respite as the Dollar index fell to 109.
Most Asian currencies remained stable ahead of a highly anticipated US consumer inflation report.
Economists predict the month-on-month core consumer price index (CPI) will climb to 0.3% in December, up from November's 0.2%.
"A hot CPI today could easily get investors jittery on the inflation topic before tariffs are even considered," ING Bank said in a note, referencing trade tariffs being introduced by incoming President Trump.