Indian Rupee: Weakness In Dollar Supportive For Local Currency

The Indian Rupee has dropped a little today after testing its one month high earlier this week. However, the backdrop remains supportive for the domestic currency after the all the six members of RBIs monetary policy meeting have voted in favour of a rate hike, while maintaining a neutral stance. On the basis of an assessment of the current and evolving macroeconomic situation at its meeting, the Monetary Policy Committee (MPC) decided to increase the policy repo rate under the liquidity adjustment facility (LAF) by 25 basis points to 6.25%. Consequently, the reverse repo rate under the LAF stands adjusted to 6%, and the marginal standing facility (MSF) rate and the Bank Rate to 6.50%. This was the first rate hike by the Indian central bank in four-and-a -half years.

Local stocks surged after the central bank maintained its neutral stance while raising repo rate by 0.25%. The Sensex settled above the psychologically important 35,000 mark after regaining that level in morning trade. Banks and Auto shares surged while the supportive Asian equities also boosted sentiments for local markets. The local stocks continued to gain today as well.

The Sensex has jumped more than 1% on the day. However, this has not translated into any gains in the local currency. The Indian Rupee is quoting around 67.04 mark in global markets, down 0.30% on the day. The NSE USD/INR futures for June are quoting at 67.16, up 0.14% on the day. Dollar’s decline in world markets has not supported the local currency much. US dollar index fell for a fourth consecutive session today to test its lowest mark in around two weeks. Dollar was hurt yesterday after European Central Bank (ECB) chief economist, Peter Praet, indicated that the central bank could be approaching end to its quantitative easing program.