India keeps policy rate unchanged in surprise move, rupee tumbles

Adjust Comment Print

The rupee's plunge to a new record low of 73.77 against the dollar by falling 44 paise in early trade, too, weighed on investor mood.

Prakash Sakpal, economist, Asia at ING said that even a hike of 25 basis points is unlikely to help save the rupee, adding that the central bank will need to do more but that looks unlikely on the grounds of on-target inflation and stress in the financial sector. Selling activity gathered momentum after the RBI kept rates unchanged but changed its stance to "calibrated tightening".

However, we also find it hard to believe that the central bank will turn a blind eye to the currency problem.

The MPC voted 5:1 in favour of the status quo with only one member Chetan Ghate voting for a 25 basis points hike. While price pressures still remain moderate, the risks to increased inflation have risen.

Analysts expect oil prices to breach the psychological barrier of $100/barrel in the near future.

More news: Morata earns win for Chelsea as Arsenal roll past Qarabag

The RBI said that made it vital "to further strengthen domestic macroeconomic fundamentals". Retail and food inflation also fell in the third quarter, bringing respite to the unabated hike in fuel prices.

The market did not react well to the RBI's decision.

The hike in minimum support prices for the winter crop has been announced by the government.

Rising protectionist tendancies, threats of currency wars and policy normalisation in the U.S. pose the biggest risks for domestic growth prospects, it said.

India's inflation is 3.69% as of August 2018, below the 4% target.

More news: Nintendo has patented a working Game Boy shell for your smartphone

The think-tank of the Monetary Policy Committee (MPC) has chose to hold the rates against strong expectations that the rates may be hiked for the third time in a row.

In the share markets, the broader NSE index was down 1.95 per cent at 10,647 as of 0713 GMT, hitting its lowest level since July 3.

Despite internal and external pressures on the Indian economy, the central bank retained its growth forecast of 7.4% for 2018-19 and 7.6% for 2019-20.

Coming back to the Indian Rupee Exchange Rate, the recent downfall in the rupee is being attributed to the RBI's decision to keep its lending rates unchanged. Sajal Gupta, head forex and rates, Edelweiss Securities, said, "Market has not reacted positively to steps taken by the government for stability in rupee as they were perhaps not strong enough to address the key issue of short term demand".

The domestic unit crashed below the 74-mark for the first time ever in intra-day trade on persistent capital outflows and high crude oil prices.

More news: Saudi journalist Jamal Khashoggi 'was killed inside Saudi consulate'