The Indian rupee nudged higher on Thursday, lifted by central bank intervention that complemented a boost to sentiment from a hawkish tilt in the central bank's policy minutes and a broadly softer dollar.
The rupee was at 95.6050 per dollar, up 0.1% from its close in the previous session.
State-run banks were spotted offering dollars, most likely on behalf of the RBI, traders said. Frequent interventions by the Reserve Bank of India have stood in the way of pressure on the rupee from elevated oil prices and sustained corporate dollar demand.
A hawkish tone in the central bank's policy minutes and a broadly weaker dollar on the back of lower U.S. Treasury yields also aided the rupee.
India's rate panel left the door open to future rate hikes earlier this month, watching for evidence that supply-sparked inflation may be seeping into the broader economy which could merit higher borrowing costs, minutes of the committee's meeting released on Wednesday showed.
Most of the committee's members said there would be a need to tighten policy if inflation proves persistent or external shocks deepen, and "this might be the case ahead," Tanay Dalal, an economist at Axis Bank, said in a note.
"We continue to see hikes to a 6% neutral, with room for an October move opening. However, a December hike is far more likely."
The recalibration of expectations also lifted dollar-rupee forward premiums, with the 1-year forward implied yield climbing as much as 8 bps to 2.90%.
Elsewhere, most Asian currencies traded stronger and equities rallied, boosted by improved market sentiment after the U.S. Treasury rolled out steps to cool surging long-tenor bond yields by doubling buyback sizes for such papers.
"Given that buybacks are a zero-sum game, they are unlikely to materially alter the natural trajectory for long-dated yields, which has been up. Some dampening effect, yes. Beyond that, we move on," analysts at ING said in a note.
