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Rupee steady at 46.86 after US Fed rate cut

The rupee opened steady on Thursday ahead of the Reserve Bank of India's annual monetary and credit policy, and after a surprise US Fed rate cut.

Dealers said dollar supplies seen over past the two days should continue but fresh positions will be on hold until the RBI policy announcement due at 12:30 (IST).

The surprise rate cut in the United States on Wednesday will have little impact on the spot rate, but dealers said near-term forwards could creep higher.

The rupee was quoted at 46.8450/8600 per dollar in morning deals, little changed from Wednesday's 46.8450/8525 close.

It recovered on Tuesday from a lifetime low of 47.10 after falling over one per cent in a week, helped by a stock market recovery, continuing foreign investment flows and a central bank statement saying the market may have overestimated the rupee's overvaluation on a trade-weighted basis.

Dollar forwards also fell on Wednesday on expectations of a cut in interest rates on export finance and a restoration of bank refinance limits for export credit, which were halved last July.

Dealers said the US rate cuts and hopes that more reduction in rates was likely had raised expectations of lower Indian interest rates, although RBI Governor Bimal Jalan has ruled out cuts in the bank rate or cash reserve ratio in the credit policy.

A Reuters poll carried out after the Fed news showed Wall Street dealers expect them to cut by at least another 25 basis points at their next meeting on May 15, with the majority forecasting a 50 basis point rate cut in the now 4.50 per cent Fed funds target rate.

The six-month dollar-rupee forward premium ended down at an annualised 4.69 per cent on Wednesday.

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