FX.co ★ Indian Rupee Rises on Dollar Softness

The Indian rupee strengthened to around 90.5 per US dollar, extending gains from the previous session, supported by a softer greenback and a decline in US Treasury yields. The currency’s advance was capped, however, by ongoing hedging activity from importers and steady underlying demand for dollars. Overall sentiment improved on the back of ample domestic liquidity. Significant cash infusions by the Reserve Bank of India pushed the key overnight borrowing rate roughly 100 basis points below the policy rate and created the largest liquidity surplus in six months. The RBI avoided short-term liquidity absorption measures, keeping overnight rates subdued and maintaining the surplus near INR 3 trillion, aided by federal spending and continued injections. At the same time, broader macro data—such as flat retail sales in December and a smaller-than-expected increase in the Employment Cost Index—signaled softer domestic demand, reinforcing a cautious tone in the market.