Friday, 19 October, 2018


India's Central Bank Retains Key Rate Unexpectedly

Rupee plunges to fresh record low of 73.77 against dollar US dollar surges to 15-month high against Singdollar
Conrad Doyle | 07 October, 2018, 19:17

In the minutes after the RBI's announcement became public, the currency slipped past the 74-mark.

Lately, concerns over a rise in inflation rate, high crude oil prices and an outflow of foreign funds from the country's equity market has subdued the Indian currency.

At the Interbank Foreign Exchange (Forex) market, the local currency opened higher at 73.56 a dollar against its previous record closing low of 73.58.

The rupee Wednesday weakened further to 73.25 against the United States dollar while brent crude was trading near USD 85 per barrel.

The Sensex tanked 792.17 points or 2.25 per cent to close at a near 6-month low of 34,376.99, while the Nifty slumped 282.80 points or 2.67 per cent to 10,316.45.

SBI in its research report had said RBI should hike the repo rate by at least 25 basis points to control the value of rupee from falling.

With speculation growing for steeper interest rate rises, the benchmark 10-year bond yield rose as much as 10 basis points to 8.21 per cent, not far from 8.23 per cent hit in late September which was the highest since November 2014.

"The unchanged decision suggests that the Reserve Bank of India is not overly concerned about rupee depreciation", said Mitul Kotecha, a senior emerging-markets strategist at TD Securities in Singapore.

Prakash Sakpal, Asian Economist at ING, holds the view that by keeping the policy on hold, the central bank of India seems to have dumped the rupee and pushed the ball in the government's court for more substantial currency stabilisation measures.

"The first thing that came to my mind when I saw the decision was that RBI seems to be more confident than the market on the dollar-rupee", Ashish Vaidya, executive director and head of trading at DBS Bank in Mumbai. The comments raised the possibility of another Bank Indonesian rate hike before mid-December although it has already raised interest rates five times since mid-May. "Secondly, oil prices remain vulnerable to further upside pressures, especially if the response of oil-producing nations to supply disruptions from geopolitical tensions is not adequate", it said. The rupee fell to a new record low overnight following a spike in USA bond yields. "Market is reacting strongly to Brent crude movements and with current pace 75 can likely be seen if crude touches 88-90 levels".

BAML says there's a considerable chance the RBI will raise rates again tomorrow.

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