With the Reserve Bank of India intimating that the steps they have taken in recent weeks to limit Rupee volatility are temporary, the emerging market currency did exactly what the central bank was trying to prevent and declined against its US peer.
The US Dollar to Indian Rupee Exchange Rate was in the region of 60.9850 as of 11:20 GMT
Yesterday the Reserve Bank of India opted to hold its benchmark rate at 7.25 per cent, as economist forecast, but offered a rather confusing explanation for its recent actions.
Some investors have interpreted the tone of the statement as apologetic, as though the central bank regrets introducing those measures to support the Rupee which many fear could result in economic weakness.
The USD/INR exchange rate hit a high of 61.1850
In response to the Rupee’s 1.8 per cent drop against the US Dollar in the wake of the central bank announcement, one Singapore based currency strategist argued: ‘The market went into yesterday’s meeting expecting the RBI to sound hawkish, and instead the tone was relatively dovish. It would seem odd if the RBI again reverts and imposes more Rupee-support steps, so it seems to be left with no choice but to let the market decide a stable level.’
Stocks also declined for a sixth day on investor concerns regarding currency fluctuations and resultantly poor economic growth.
In a recent report by Credit Agricole it was stated: ‘The situation in India is quickly turning into a vicious circle. The marginal costs of the recent tightening measures are significantly outweighing the benefits as rates remain elevated with liquidity conditions tight. Higher rates in turn lead to higher debt-servicing cost and worsening fundamentals, which are the root cause of Rupee weakness.’
Some industry experts are now forecasting that the Rupee could continue its descent, perhaps weakening past 62 Rupee per Dollar. If that occurred the central bank may be forced to increase banks’ cash reserve ratio from 4 per cent.
The Rupee’s extensive decline was triggered by comments issued by the US Federal Reserve, as intimations that the world’s largest economy may begin to rein in monetary easing caused emerging-market currencies to go into freefall.
Today’s Federal Open Market Committee meeting is likely to inspire additional market turmoil. If Fed Chairman Ben Bernanke offers a more definitive timeline of when stimulus may start being eased, additional Rupee weakness can be expected.
Current Rupee (INR) Exchange Rates
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The Pound Sterling/ Indian Rupee Exchange Rate is currently in the region of: 92.6548 >
The Euro/Indian Rupee Exchange Rate is currently in the region of: 80.9825 >
The US Dollar/Indian Rupee Exchange Rate is currently in the region of: 60.9850 >
The Australian Dollar/Indian Rupee Exchange Rate is currently in the region of: 55.0049 >
The New Zealand Dollar/Indian Rupee Exchange Rate is currently in the region of: 48.7230 >
The Canadian Dollar/Indian Rupee Exchange Rate is currently in the region of: 59.2596 >
(Correct as of 11:20 GMT)