The Indian rupee strengthened to its highest level in over two weeks on Monday, supported by gains in regional currencies and anticipated dollar inflows due to the rebalancing of MSCI's equity indexes.
As of 11am IST, the rupee was trading at 84.30, marking its strongest point since November 7, and up 0.1% from its previous close at 84.4450. Despite hitting an all-time low of 84.5075 on Friday, which prompted intervention by the Reserve Bank of India (RBI), the local currency saw some relief on Monday as the dollar index and U.S. bond yields pulled back, along with increased dollar inflows, according to traders.
The dollar index stood at 106.9, down 0.5% from its Friday closing level, while the 10-year U.S. Treasury yield decreased by 6 basis points to 4.35%. This pullback was partly driven by market confidence following U.S. President-elect Donald Trump's nomination of veteran investor Scott Bessent as Treasury Secretary.
Asian currencies generally appreciated on the day, with the Korean won leading gains with a 0.4% increase. Additionally, the rupee benefited from dollar sales by at least two large foreign banks, possibly on behalf of custodial clients, according to a trader at a state-run bank.
Indian equities are expected to receive passive inflows of approximately $2.5 billion due to the MSCI equity index rejig, according to estimates by Nuvama Alternative & Quantitative Research. The rebalancing will take effect after the market close on Monday.
Over the past two months, the rupee has faced significant pressure and has relied on frequent interventions by the RBI to prevent sharp declines. However, these interventions, combined with valuation losses, have reduced India's foreign exchange reserves to a four-month low of $657.89 billion as of the week ending November 15.
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