Rupee Gains After RBI Hikes Rates Aggressively

Rupee gains after RBI hikes rates to highest since 2019

The rupee gained on Friday after the Reserve Bank of India hiked rates aggressively, by 50 basis points to take its key lending rate to the highest since 2019.

Bloomberg showed the rupee was last changing hands at 79.2413 per dollar, compared to its previous close of 79.4713.

PTI reported that the Indian currency gained 17 paise to close provisionally at 79.23 against the US dollar.

That comes after the RBI hiked the repo rate by 50 basis points to 5.50 per cent, the highest since 2019 and above what was expected broadly.

RBI Governor Shaktikanta Das also reiterated that the central bank was ready to whatever it takes to stabilise inflation and the rupee

“With the outlook that inflation will likely soften, and only if inflation risks don’t flare up again, this probably implies that hikes of a smaller size are likely in the upcoming meetings,” ANZ Research analysts wrote in a note.

“While the rupee isn’t a stated policy target for the MPC, it has likely played an indirect role in today’s decision in our view, given its weakness has exacerbated imported inflation.”

Reuters reported that the rupee closed up 0.3 per cent at 79.23 per U.S. dollar, having jumped up to 78.94 in the session.

“With inflation expected to remain above the upper tolerance threshold in Q2 and Q3 of the current financial year, the MPC stressed that sustained high inflation could de-stabilise inflation expectations and harm growth in the medium term,” RBI Governor Shaktikanta Das said.

With the raise, the MPC said it remains focused on withdrawal of accommodation to ensure that inflation remains within the target, while supporting growth.

Analysts don’t expect any further sharp falls in the rupee if the RBI stays on a tightening path. The currency has depreciated more than 6 per cent this year like most of its emerging market peers, with the RBI stepping in occasionally to curb the volatility.

Mr Das said the bank was watchful of maintaining rupee stability but it did not favour any particular level.

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