Rupee breaches 74-mark against dollar as RBI keeps policy rate unchanged

Muriel Colon
October 5, 2018

"As new data comes in we would look into changing our policies accordingly". Also, it is up to the commercial banks either they want to keep interest rates 'stagnant or want to raise them.

"For bond markets, a 25 bps hike accompanied by a hawkish stance could trigger the 10-year bond yield to rise to 8.25 per cent", Rao told Reuters after yields surged on Thursday.

The rupee collapsed to a fresh low of 73.77 against the United States dollar on Thursday, as global oil prices continued to rise, deepening concerns about the current account deficit and capital outflows. The rupee has depreciated almost 15 percent this year, becoming the worst-performing currency in Asia apart Indonesia and the Philippines.

"There could be an upward revision in the inflationary projections for the year on account of higher oil prices, increase in MSPs and imported inflation (on back of rupee depreciation)", CARE Ratings said in a research note. The comments raised the possibility of another Bank Indonesian rate hike before mid-December although it has already raised interest rates five times since mid-May. Higher prices have swollen India's current account deficit, which last stood at around 2.4 per cent of GDP, in the April-June quarter.

Anticipation of a rate hike has increased in the past month as oil prices climbed, the rupee's slide accelerated and concerns on liquidity emerged.

Hence, the RBI said that it was vital "to further strengthen domestic macroeconomic fundamentals".

Mr Gandhi took aim at Prime Minister Narendra Modi yesterday, accusing him of remaining silent over the rupee crisis.

Taking a more gradual approach to raising rates should make it easier to sustain economic growth, with the RBI forecasting expansion of 7.4 percent for the financial year ending in March and 7.6 percent for the following year.

A labourer carries an iron pipe at the construction site of a residential complex on the outskirts of Kolkata, October 5, 2018.

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