India rupee nears record low near 96.8450/USD despite RBI rate hike
The Indian rupee fell to a five-month low and neared a record low on Wednesday, hitting 96.8450 per dollar, despite the Reserve Bank of India raising its policy repo rate by 25 basis points to 5.5%. Traders said the policy was not hawkish enough to support the currency.
(Updates at market close) By Dharamraj Dhutia and Jaspreet Kalra MUMBAI, Oct 7 (Reuters) — The Indian rupee fell to a five-month low and neared a record low on Wednesday despite an interest rate hike and signals about further monetary tightening, with traders saying the policy was not hawkish enough to support the Asian currency. 5%, marking the first rise in nearly four years, and signalled more hikes by changing its stance to "calibrated tightening" from "neutral". 7750. Shares in Mumbai snapped two days of gains while bond yields rose modestly.
"The market was expecting more stern guidance on rates or liquidity. Since the 25 bp hike was expected and there was no 'shock value' in the statement, the rupee returned to behaving like it does in a scant inflow environment," a trader at a foreign bank said. The rupee has been under pressure despite persistent interventions by the RBI and a lift from inflows of more than $140 billion garnered by the central bank's one-off policy measures.
Speaking to reporters after the policy, RBI Governor Sanjay Malhotra termed short-term financial market behaviour as "irrational" in response to a query on why currency forecasts and hedging continued to point to further rupee weakness. "It is only in the long run they are able to find the right value," Malhotra said, adding that by a number of estimates, including the real effective exchange rate, the rupee may actually be "undervalued". Analysts polled expect the Indian currency to languish near record lows over the next three to six months.
The rupee is Asia's second-worst performer so far this year, battered by foreign portfolio outflows, elevated oil prices, rising global bond yields as central banks raise rates to combat inflation. ANZ FX Strategist Dhiraj Nim said that the prolonged weakness in portfolio flows is a cause for concern, adding that macroeconomic resilience "may prove insufficient to offset a deterioration in the external backdrop". ANZ expects two more 25-basis-point rate hikes in India by March 2027. A broadly firmer dollar dragged the rupee alongside routine demand from corporates and bids related to portfolio outflows.
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