The Reserve Bank of India’s decision to raise both the bank rate and the marginal standing facility rate to 10.25 per cent supported the Rupee yesterday and allowed the Indian currency to achieve a two-week high against its American counterpart.
The US Dollar to Indian Rupee Exchange Rate was in the region of 59.3300 as of 09:55 GMT
According to one Mumbai based economist, the central bank is likely to keep these measures in place for at least the next two months, particularly given the uncertainty surrounding the US and the tapering of easing.
Indranil Pan asserted that the RBI is attempting to ‘contain foreign exchange volatility by squeezing out liquidity. Short-end rates are likely to rise to at least 10.25 per cent, leading to a transmission to other interest rates in the economy.’
The US Dollar to Rupee Exchange Rate hit a low of 59.0400
In addition to the rate cuts, the central bank announced its intention to conduct open-market sales of government debt (worth in the region of 120 billion Rupees) tomorrow and cap the amount it’s willing to lend to commercial banks through the daily repurchase window to 750 billion Rupees.
Following the RBI’s decision India’s Finance Minister Palaniappan Chidambaram issued the following statement to reporters: ‘These measures should not be read as a prelude to any policy rate changes. These measures in no way affect our commitment to growth.’
Chidambaram added that the RBI was committed to limiting excessive speculation and making the Rupee stable.
The Rupee was also able to retain gains recorded against the US Dollar yesterday because of the speculation surrounding today’s highly anticipated speech by Federal Reserve Chairman Ben Bernanke.
However, if today’s US housing starts data shows a second monthly increase, as forecast, and Bernanke is less dovish on the subject of reining in easing the Rupee could fall.
As one industry expert notes: ‘We are very constructive on the US Dollar for very fundamental reasons. A combination of a US which is re-industrialising, and a household which is starting to spend again, could presage a long, strong period for the US, which of course would be good for the Dollar.’
Current Rupee (INR) Exchange Rates
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The Pound Sterling/ Indian Rupee Exchange Rate is currently in the region of: 89.7016 <
The Euro/Indian Rupee Exchange Rate is currently in the region of: 78.0275 >
The US Dollar/Indian Rupee Exchange Rate is currently in the region of: 59.3300 >
The Australian Dollar/Indian Rupee Exchange Rate is currently in the region of: 54.6435 <
The New Zealand Dollar/Indian Rupee Exchange Rate is currently in the region of: 46.7124 <
The Canadian Dollar/Indian Rupee Exchange Rate is currently in the region of: 57.0536 <
(Correct as of 09:50 GMT)
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