Rupee rises ahead of RBI policy; focus on rates, dollar inflow measures

The Indian rupee opened 8 paise higher at 95.71 against the US dollar on Friday (June 5), compared with its previous close of 95.79, as traders awaited the Reserve Bank of India's monetary policy decision due later in the day.

The domestic currency enters the policy session after falling for three consecutive trading days and ending Thursday (June 4) at its weakest level of the session.

While economists largely expect the RBI to keep interest rates unchanged,

currency markets remain divided on the outcome. Market participants are also closely watching for any announcements aimed at attracting foreign dollar inflows, which are seen as critical for supporting the rupee in the near term.

Inflation remains a key concern for the central bank, which has a mandated target of 4% with a tolerance band of plus or minus 2%. Policymakers are closely tracking global commodity prices, especially crude oil, along with food inflation risks that could be exacerbated by geopolitical tensions.

Recent reports have suggested the government and regulators may consider steps to encourage overseas investments into Indian debt markets. One proposal under discussion is the removal of capital gains tax on foreign portfolio investments in government securities, a move that could help boost inflows.

The rupee is also facing pressure from external factors, including elevated crude oil prices, which could widen India's current account deficit. Concerns over weak portfolio flows and uncertainty surrounding geopolitical developments in the West Asia have further weighed on sentiment.

Asian currencies traded mostly lower on Friday (June 5), reflecting cautious risk appetite among investors amid lingering global uncertainties.

-With Reuters inputs