Markets

RBI surprises by holding interest rates and shifting to hawkish stance

RBI surprises by holding interest rates and shifting to hawkish stance

A likely intervention by the country's central bank along with expectations of some short-term measures in the upcoming monetray policy to curb currency fluctuations aided the Indian rupee to recover on Thursday from its new record low of 73.82 to a U.S. dollar.

The rising oil price is also a huge challenge facing India as a major crude importer, resulting in a higher current account deficit.

The pause after back-to-back hikes since June puts the central bank behind counterparts in Indonesia and the Philippines, which have taken aggressive steps to support their currencies amid an emerging-market rout triggered by higher USA rates and a stronger dollar. The Indian rupee breached the 74-mark at the end of Friday, which according to RBI governor Urjit Patel, is still a better performance than its peers.

The Sensex tanked 792.17 points or 2.25 per cent to close at a near 6-month low of 34,376.99, while the Nifty slumped 282.80 points or 2.67 per cent to 10,316.45.

In the last policy meet, the RBI hiked repo rate by 25 basis points to 6.50 per cent, for the second time in a row.

The pause after two hikes since June puts the RBI a step behind peers in Asia, such as Indonesia and the Philippines, which have aggressively tightened policy to counter an emerging-market selloff triggered by higher USA rates and a stronger dollar. "Also, the rupee has depreciated to its all-time low to 74 against the dollar should attract NRI property buyers".

Any central bank in the world will want to be pre-emptive rather than reactive to future inflation expectations, and in India's case, expectations remain elevated.




India's benchmark 10-year sovereign yield fell to 8.04 per cent.

Economists had expected the Reserve Bank of India (RBI) to hike its key rate as Asia's third-largest economy grapples with a plummeting currency and soaring oil prices.

The rupee has tanked 14 percent against the dollar this year as investors withdraw from emerging markets.

Foreign institutional investors (FIIs) sold shares net worth a net of Rs 1,842 crore on Monday, provisional data showed.

"The rupee has made a new record low today on the back of consistent rise in the crude oil prices". A sharp rise in input costs, combined with rising pricing power, poses the risk of higher pass-through to retail prices for both goods and services, RBI said.

Several experts were taken by surprise by the RBI's move to keep rates unchanged.


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