Indian Rupee welcomes RBI rate hike decision; here’s how

While domestic benchmark indices took the most beating from investors, it was the Indian Rupee that showed good response when RBI hiked policy repo rate by 25 basis points. The start of today’s trading session was not in favour of Indian currency as it opened in a free fall and depreciated by 5 paise to 68.59 against the US dollar. So far today, the rupee has touched an intraday high of 68.628 against the US benchmark dollar index.

However, few minutes after the policy announcement, Indian rupee  strengthened against US dollar by touching 68.46-mark. Currently, the rupee is trading at 68.506 most muted against US dollar in comparison with previous day. 

Anindya Banerjee analysts at Kotak Institutional Equities earlier said, “In case, RBI hikes by 25 bps, Indian 10 year yields may harden towards 6.85% and Rupee may strengthen due to favourable real rate differential. In case,  RBI does not hike rates and sounds a hawkish tone, we can expect a sell-off in Indian bond prices and probable weakness in the Rupee."

Policy repo rate now stands to 6.50% compared to the previous 6.25%.

This is the second rate hike by RBI, as in the previous policy, the central bank, under leadership of Governor Urjit Patel made its first hike (of 25 basis points) for the first under the Prime Minister Narendra Modi led NDA government tenure. Consequently, the reverse repo rate under the LAF stands adjusted to 6.25%, and the marginal standing facility (MSF) rate and the Bank Rate to 6.75%.