Mumbai: The Indian rupee on Wednesday strengthened 0.8%, its biggest gain in seven months, against the dollar after Reserve Bank of India (RBI) kept key rates unchanged as expected.
Gains in the Asian currencies markets also supported the local currency as dollar weakened and investors considered the implications of a change in leadership at the Federal Reserve.
The home currency closed at 65.01 per dollar, up 0.75%, its maximum gains 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 (gross value added) growth forecast for fiscal 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 an at least 25 basis points cut. All 15 economists surveyed by Mint expected MPC to keep the repo rate unchanged at 6%.
“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. The policy appears neutral. 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” brokerage firm Nomura said in a report to its clients.
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,” the report said. The 10-year bond yield closed at 6.703% against 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.