2 hrs ago
Rupee Nears Record Low Despite RBI Rate Hike
India’s rupee lost value against the US dollar on Wednesday.
It ended at 96.78 rupees per dollar, close to its weakest level ever.
The Reserve Bank of India raised its main interest rate to 5.5%.
But traders thought the increase was not enough to overcome other pressures.
Oil was expensive, the dollar was strong, and foreign investors were moving money out.
The RBI governor said the rupee may be undervalued and that markets can behave irrationally in the short term.
The rupee has lost 7.7% this year.
Government borrowing costs also rose after the policy announcement.
The rupee closed Wednesday at 96.78 per dollar, down 34 paise and near its May record low of 96.82.
The Reserve Bank of India raised its repo rate by 25 basis points to 5.5% and adopted a “calibrated tightening” stance.
High crude prices, a strong dollar, foreign investor outflows and elevated US yields outweighed support from the rate hike.
The rupee has fallen 7.7% this calendar year, making it Asia’s worst-performing currency, according to the article.
The benchmark 10-year government bond yield rose five basis points to 7.24%, its highest level in three years.
- Who
- The Indian rupee, the Reserve Bank of India, and currency and bond market participants.
- What
- The rupee weakened close to its record low despite the RBI raising its repo rate to 5.5%.
- Where
- India’s currency and government bond markets.
- When
- Wednesday; the article does not specify the date.
- Why
- Elevated crude oil prices, a strong US dollar, foreign portfolio outflows and higher US yields outweighed the effect of the rate hike.
Market concerns
RBI governor’s view
Rupee valuation and market pressures
Market concerns
Market participants said external pressures were overpowering monetary policy and some wanted stronger liquidity tightening or direct foreign-exchange intervention.
RBI governor’s view
RBI Governor Sanjay Malhotra said markets can be irrational in the short run and suggested the rupee may currently be undervalued.
Impact of the rate decision
Market concerns
Analysts said the rate hike was largely anticipated and the shift to calibrated tightening suggested a potentially shallow hike cycle, offering insufficient support to the rupee.
RBI governor’s view
The RBI raised the repo rate by 25 basis points and described its stance as calibrated tightening.
Key facts
- Rupee closing rate
- 96.78 per US dollar
- Daily rupee change
- Down 34 paise from the previous close
- Previous record low
- 96.82 per dollar, reached in May
- RBI repo rate
- Raised by 25 basis points to 5.5%
- Rupee performance this year
- Down 7.7%; described as Asia’s worst-performing currency
- Crude oil price
- $101.96 a barrel on Wednesday, up 1.37%
- 10-year government bond yield
- 7.24%, up five basis points and at a three-year high
- Near-term rupee outlook
- Market participants expect trading in a 96–97 range
Quotes
Anil Kumar Bhansali
Head of treasury at Finrex Treasury Advisors
“The shift to ‘calibrated tightening’ signalled a less hawkish stance than markets had expected, suggesting that the rate-hike cycle is likely to be shallow. This has weighed on the rupee, as it is insufficient to support the currency.”
financialexpress.com
“The market may be looking for stronger liquidity tightening or direct FX intervention rather than just a rate hike.”
financialexpress.com
Sources
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