Rupee strengthens against US dollar ahead of RBI policy


Mumbai: The Indian rupee strengthened against the US dollar on Wednesday ahead of the Reserve Bank of India’s (RBI) interest rate decision due after 2.30pm.

Gains in the global equity and currencies market also supported the home currency.

At 9.15am, the rupee was trading at 64.06, up 0.29% from its previous close of 64.25. It opened at 64.11 a dollar.

India’s benchmark Sensex index rose 0.67% or 228.28 points to 34,424.22. So far this year, Sensex has risen 1.2%.

India’s 10-year bond yield was at 7.565% from its Monday’s close of 7.568%. Bond yields and prices move in opposite directions.

Analysts expect the RBI to keep interest rates on hold on expectations that inflation may accelerate further due to higher crude oil prices and a proposed hike in minimum support prices (MSPs) for farmers in the budget.

“We expect RBI to leave the rate unchanged. However, the tone is likely to be on the hawkish side, acknowledging upside risks to inflation. Yet, we do not expect Mint Street to express any urgency to raise rates anytime soon. After all, growth dynamics are still subdued, debt deleveraging is underway and bond yields have already hardened substantially,” said Edelweiss Securities Ltd in a 5 February note.

Of the 15 economists surveyed by Mint, 14 expect the central bank to keep repo rate—the rate at which the central bank infuses liquidity in the banking system—unchanged at 6%. Only one expects a rate hike of 25 basis points.

Analysts said breaching its fiscal deficit target for fiscal year 2017 and upward revising its deficit target for next fiscal could prompt RBI to change its policy stance in the near future.

Since the beginning of this year, the rupee has fallen 0.3%, while foreign institutional investors have bought $2.25 billion from local equity and $2.06 billion in debt markets.

Asian currencies were trading higher. South Korean won was up 0.6%, China renminbi 0.58%, Philippines peso 0.40%, Taiwan dollar 0.37%, China offshore 0.33%, Malaysian ringgit 0.28%, Japanese yen 0.24%, Thai baht 0.18% and Singapore dollar 0.09%.

The dollar index, which measures the US currency’s strength against major currencies, was trading at 89.603, up 0.02% from its previous close of 89.585.livemint