Indian Rupee strengthens against dollar, after RBI hikes repo rate by 25 bps

Right after minutes of RBI's monetary policy announcement today, the Indian rupee was trading volatile against US benchmark dollar index. The domestic currency reversed early morning gains and and surged to 67.135 against the dollar index. However, it immediately strengthened above 0.50 points or 0.06% at 67.045 against the American currency. In early trade, the domestic currency strengthened by 11 paise to 67.04 against the American currency at the interbank forex market. RBI Governor Urjit Patel, along with six-member Monetary Policy Committee (MPC) for the first time in history decided to hold the policy meet over 3 days.

Anindya Banerjee analysts at Kotak Institutional Equities said, "Rupee opened marginally higher, around 67.10 on spot, against US Dollar. Most Asian currencies are on the front foot against USD. Crude oil prices have bounced off their yesterday lows, with Brent now at at 75.60 dollars a barrel up from 73.88 yesterday. Majors are stuck in a sideways phase against USD. Today,

Rupee can take cue from the RBI monetary policy. Theoretically, when central bank commits to keep real rates higher, either through immediate action or with a hike over the near term, it has a positive impact on the currency. High real rates induces carry traders to play carry trade on INR." 

On the basis of an assessment of the current and evolving macroeconomic situation at its meeting today, the Monetary Policy Committee (MPC) decided to increase the policy repo rate under the liquidity adjustment facility (LAF) by 25 basis points to 6.25 per cent.

Consequently, the reverse repo rate under the LAF stands adjusted to 6.0 per cent, and the marginal standing facility (MSF) rate and the Bank Rate to 6.50 per cent.

The decision of the MPC is consistent with the neutral stance of monetary policy in consonance with the objective of achieving the medium-term target for consumer price index (CPI) inflation of 4 per cent within a band of +/- 2 per cent, while supporting growth.