Mumbai: Indian rupee on Wednesday strengthened 0.8%, its biggest gain in seven months, against the US dollar after the Reserve Bank of India (RBI) kept key rates unchanged as expected.
Gains in the Asian currencies also supported the greenback as the dollar weakened on the hopes that President Donald Trump may pick next Us Federal Reserve chair candidate as potentially dovish.
The home currency closed at 65.01 a dollar, up 0.75%, its maximum gain since 14 March, from its previous close of 65.50. The rupee opened at 65.36 and touched a high of 64.95—a level last seen on 25 November.
RBI kept the repurchase rate unchanged at 6% and cut GVA growth forecast for fiscal year 2018 to 6.7% from 7.3% earlier. Five out of six members were in favour of the monetary policy decision, while Ravindra Dholakia voted for at least 25 basis points cut. All 15 economists surveyed by Mint expected the MPC to keep the repo rate unchanged at 6%.
“The RBI’s decision to maintain the status quo is indicative of its inclination to look through the near-term outlook, which is clouded by transitory factors and concerns over higher core inflation. Overall, the policy appears neutral,” said brokerage firm Nomura in a report to its investors. “In our view, growth has bottomed out and we expect a recovery, led by ongoing progress following remonetisation, restocking efforts following the implementation of the GST and the lagged effects of lower lending rates.”
“We also expect inflation to rise above 4% in coming quarters, as we expect the output gap to gradually narrow, as well as on statistical and transitory factors such as the house rent allowance increases and the lagged pass-through from the GST tax changes” added Nomura.
So far this year, the rupee has gained 5%, while foreign institutional investors have bought $5.51 billion and $20.05 billion in equity and debt, respectively.
“We also see a higher probability that the central government will miss its budgeted fiscal deficit target of 3.2% of GDP in FY18 by 0.3pp. Against this backdrop, we expect the RBI to leave policy rates unchanged in our base case. Weaker-than-expected growth, an undershooting of the 4% inflation target and the government sticking to its budgeted fiscal consolidation target could open up room for more accommodation, in our view”, the report added.
The 10-year bond yield closed at 6.703%, compared to its previous close of 6.648%. Bond yields and prices move in opposite directions.
The BSE benchmark index rose 0.55%, or 174.33 points, to closed at 31,671.71. So far this year, the Sensex has gained over 19%.
Among the Asian currencies, Indonesian rupiah was up 0.48%, South Korean won 0.42%, China offshore 0.38%, Japanese yen 0.34%, Malaysian ringgit 0.23%, Philippines peso 0.18%, Singapore dollar 0.19%, Philippines peso 0.18%, Taiwan dollar 0.17%, China renminbi 0.12%.
The dollar index, which measures the US currency’s strength against major currencies, was trading at 93.363, down 0.22% from its previous close of 93.569.