INDIA RUPEE-Rupee nearly flat alongside subdued Asia FX; RBI policy decision awaited

By Jaspreet Kalra

MUMBAI, June 6 (Reuters) - The Indian rupee was nearly flat in early trading on Friday, tracking muted moves in regional currencies as traders awaited the Reserve Bank of India's monetary policy decision.

The rupee INR=IN was at 85.80 as of 09:20 a.m. IST, little changed from its close at 85.79 in the previous session.

The RBI's policy decision is due at 10:00 a.m. IST, and the central bank is widely expected to cut rates by 25 basis points (bps) as muted inflation provides ample space to focus on boosting economic growth further.

Asian currencies were mostly rangebound on the day, while the dollar index nudged higher to 98.8.

Markets showed a muted reaction after U.S. President Donald Trump and Chinese leader Xi Jinping held a much anticipated call while leaving key issues unresolved for future talks. The offshore Chinese yuan CNH= was a tad lower at 7.1790.

The rupee is expected to hover in the 85.75-86.20 range with a weakening bias in the near-term, FX advisory firm IFA Global said in a note.

Dollar-rupee forward premiums, meanwhile, were steady in the run up to the RBI's policy announcement, with the 1-year implied yield at 1.91%.

The announcement of fresh measures to inject rupee liquidity into the banking system or dovish commentary from the central bank could push forward premiums lower, a trader at a Mumbai-based bank said.

The trader expects the 1-year implied yield to find support at 1.85% in the near term.

India's benchmark 10-year bond yield was little changed at 6.1985% while the benchmark equity index, the Nifty 50 .NSEI, was nearly flat as well on Friday.

Later in the day, the focus will be on the release of U.S. non-farm payrolls data, which will offer cues on how trade uncertainty is impacting the U.S. economy and affecting the outlook for rate cuts by the Federal Reserve.