India Central Banks Large Rate Cut Squeezes Forward Premiums, Leaves Rupee Rupee Vulneerable, Analysts Say

Mumbai, June 9 (Reuters) – The Reserve Bank of India’s Surprise Outsized Rate Cut Last Week will leave Premiums, Several Analysts said on Monday.

The rupee has underperformed its asian peers in 2025 amid weak capital flows. A Narrowing Interest Rate Differential – With the Us Federal Reserve Moving Slower Than the RBI in Cutting Rates – Sugges the Indian Currency May Continue to Lag.

The 1-month us dollar/rupee forward premium-Typical more sensitive to liquidity conditions-Fell to 7.5 Paisa, its lowest Level SINCE NEVEMBER.

Meanwhile, the 1-year premium, which is more responsive to rate differential between the US and India, declined to 1.5250 Rupees, Marking Its Lowest Level in Nearly a year.

A drop in Dollar/Rupee Forward Premiums Makes The Rupee Less Attractive For Carry Trades, and Diminishes the incentive for experts to Hedge Future Receivables.

At the same time, it raises the likelihood that importers-WHO Typically Hedge Near-Term Payments Obligations-Will Step Up their Hedging Activity.

The decline in premiums – a less favorite rate differential between the US and India – Could Leave the Rupee Open to Sharpeer Depreciation.

Against the backdrop of benign inflation and the need to support growth, the reserve bank of India last Friday delivered a larger-that-exposed 50 basis point (BPS) Cut, Exceding the 25 bps anticipate Economists.

In a further Easing Move, The Central Bank Slashed The Cash Reserve Ratio for Banks.

“One thing the rupee had going for it is that it is offered attractive carry … with the 50-bps rate cut from the rbi, carry attraction has been reduced,” Mitul kotecha, head of fx and eme macro strategy AMA At barclays, adding that in an environment where investors are focrated on carry, the rupee’s appeal has been diminished.

Falling Premiums Can Be a “Mild Added Headwind” for the Rupee AMID Globally Elevated Yields, Dhiraj Nim, FX Strategist at Anz Research, Said, and Pointed Out that If IF IF IF IF IF IF IF IF IF IF IF IF IF IF IFINE Could be scope for one more rate cut.

(Reporting by Nimesh Vora, Jaspreet Karla; Editing by Harikrishnan Nair)