Thursday, December 8

Rupee steady after RBI hikes key lending rate by 50 bps


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MUMBAI — The Indian rupee held its gains against the dollar on Friday after the Reserve Bank of India raised the key repo rate by 50 basis points, as expected, to fight persistently high inflation in the country.

The partially convertible rupee was trading at 81.54 per dollar by 0553 GMT, firming slightly from its opening level. The unit had closed at 81.86 in the previous session when it was a whisker away from a record low.

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RBI’s monetary policy committee raised the key lending rate or the repo rate to 5.90%, its fourth hike in the current cycle, as India’s annual inflation rate came above the central bank’s target zone for the eighth consecutive month in August driven by surging food prices.

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Sticky, above-target inflation and currency depreciation triggered by chances of further frontloaded rate hikes by developed market central banks had made the hike expected, said Aurodeep Nandi, India economist and vice president at Nomura.

RBI’s reluctance to change stance from “withdrawal of accommodation” indicates that more monetary policy tightening is in the offing, Nandi said.

Analysts agreed that further rate hikes were needed as the US Federal Reserve’s aggressive stance to combat inflation would likely keep battering emerging and developed market currencies.

“Given the global adverse conditions we remain wary of the pressure on the rupee and hence the need for continued rate hikes,” said Upasna Bhardwaj, chief economist at Kotak Mahindra Bank.

At the open on Friday, the rupee had received a boost from data out late Thursday that showed that India’s current account deficit widened less than expected in April-June, while balance of payments showed an unexpected surplus. (Reporting by Anushka Trivedi in Mumbai; Editing by Dhanya Ann Thoppil)



financialpost.com