Earlier this week the Rupee enjoyed an impressive surge as the Fed’s decision to refrain from tapering easing gave emerging market assets a significant boost. However, another surprising central bank decision has seen the Indian currency shed these earlier gains.
The US Dollar to Indian Rupee Exchange Rate was in the region of 62.2300 as of 14:10 GMT
At his first policy meeting as Governor of the Reserve Bank of India Raghuram Rajan shocked markets by increasing interest rates in an attempt to stave off inflation.
Rajan, who did adopt the hawkish stance expected, also reduced some of the emergency measures the central bank introduced in order to temper Rupee volatility.
The repo rate was increased by 25 basis points to 7.50 and the Rupee accordingly dropped against several of its most traded peers.
In a statement accompanying the decision Rajan asseted; ‘We believe that easing the exceptional liquidity measures was warranted given that the external environment has improved [...]The calibrated withdrawal will provide a boost to growth [...] and reduce the strain on corporate and bank balance sheets. We remain vigilant about external market conditions and will do what is necessary if they deteriorate again. [...] At the same time, recognising that inflationary pressures are mounting and determined to establish a nominal anchor, which will allow us to preserve the internal value of the Rupee, we have raised the repo rate by 25 basis points.’
The US Dollar to Rupee (USD/INR) exchange rate hit a low of 61.8800
In the immediate aftermath of the decision the Rupee softened to 62.6100 against the US Dollar.
As regards the Federal Reserve’s unexpected tapering decision, Rajan commented; ‘We need that stabilisation regardless of what the Fed does. Because, if we are stabilised, we are better prepared for the tapering whenever it happens. What we need to do is put our house in order before it comes back. The postponement of tapering is only that, a postponement. We must use this time to create a bullet-proof national balance sheet and growth agenda, which creates confidence in citizens and investors alike.’
Next week Indian data to watch out for includes current account figures, due out on Friday.
Given that any positive US news is likely to spur tapering speculation, any encouraging news from the North American nation could contribute to further Rupee weakening.
Current Rupee (INR) Exchange Rates:
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The Pound Sterling/ Indian Rupee Exchange Rate is currently in the region of: 99.5929 >
The Euro/Indian Rupee Exchange Rate is currently in the region of: 84.1101 >
The US Dollar/Indian Rupee Exchange Rate is currently in the region of: 62.2300 >
The Australian Dollar/Indian Rupee Exchange Rate is currently in the region of: 58.5522 >
The New Zealand Dollar/Indian Rupee Exchange Rate is currently in the region of: 52.2632 >
The Canadian Dollar/Indian Rupee Exchange Rate is currently in the region of: 60.5409 >
(Correct as of 14:10 GMT)