The rupee is set to open lower on Monday and will likely remain under pressure through the session after the central bank unexpectedly shortened by a month the deadline for its discounted forex swap facility for deposits from non-resident Indians.
The rupee is expected to open in the 95.60 to 95.64 range, per traders, having settled at 95.4250 to the dollar on Friday.
This comes despite the dollar retreating after weak U.S. retail sales data diminished expectations of a Federal Reserve rate hike next month.
The Reserve Bank of India said late on Friday it is bringing forward by a month the cutoff for its discounted forex swap facility, following more than $50 billion in inflows from non-resident Indian deposits.
Banks will now be allowed to tap the zero-cost hedging facility for overseas FX deposits raised by August 31, compared with the prior deadline of September 30, according to an RBI statement on Friday.
The decision has been taken "based on the encouraging response to the swap facility for FCNR(B) deposits and the resultant forex inflows," the central bank said.
The RBI decision is "quite surprising", a currency trader at a private sector bank said.
While inflows have far exceeded expectations, bringing forward the cutoff date hurts sentiment for the rupee at a time when oil remains a headwind and the currency is already under strain from hedging by importers, he said.
The deposit inflows had bolstered the RBI's forex war chest, with India's foreign-exchange reserves climbing to a four-month high of $707 billion through August 7. The larger reserve buffer provided the central bank more room to lean against rupee weakness.
The RBI sold dollars through state-run banks throughout last week to support the currency, bankers said.
