Rupee extends gains by 8 paise against dollar on RBI dovish policy
The rupee strengthened by 8 paise to close at 73.16 against the US dollar on Friday after the Reserve Bank of India decided to keep benchmark interest rate unchanged.
Mumbai: The rupee strengthened by 8 paise to close at 73.16 against the US dollar on Friday after the Reserve Bank of India decided to keep benchmark interest rate unchanged.
The RBI kept repo rate unchanged at 4 per cent but maintained an accommodative stance, implying more rate cuts in the future if the need arises to support the economy hit by the COVID-19 crisis.
At the interbank forex market, the rupee opened at 73.21 against the American currency and rose to a day's high of 73.02. The unit finally settled at 73.16 against the US dollar, up 8 paise from its previous close of 73.24.
In light of the RBI monetary policy and also the usual Friday G-Sec auction, trading hours were extended for both forex as well as bond markets.
"The Monetary Policy Committee (MPC) kept policy rates unchanged and kept the stance as accommodative as was expected. The communication, however, was extremely dovish. The MPC overlooked current elevated inflation prints, viewing them as transient," said Abhishek Goenka, founder and CEO of IFA Global.
Goenka further said, "The rupee had appreciated and forwards had got received but nationalised banks stepped in at lower levels to support USD-INR".
This is the third consecutive session of gain for the rupee.
Meanwhile, the dollar index, which gauges the greenback's strength against a basket of six currencies, fell 0.28 per cent to 93.34.
On the domestic equity market front, the 30-share BSE index ended 326.82 points or 0.81 per cent higher at 40,509.49, while the broader NSE Nifty rose by 79.60 points or 0.67 per cent to 11,914.20.
Foreign institutional investors were net buyers in the capital market as they purchased shares worth Rs 978.37 crore on Thursday, according to exchange data.
Brent crude futures, the global oil benchmark, fell 0.95 per cent to USD 42.93 per barrel.
"The Indian Rupee appreciated supported by the Reserve Bank of India's dovish commentary today in their October monetary policy meeting," Sriram Iyer, Senior Research Analyst at Reliance Securities said adding that the dovish comments could attract dollar flows into domestic equity and debt markets and further support sentiments.
On a weekly basis, the domestic currency lost 3 paise to the US dollar.
"For the week the Rupee ended almost flat against the dollar as greenback purchases by the central bank, offset the impact of foreign fund inflows into shares," Iyer said.
Positive outlook on the GDP number and inflation also supported sentiments, traders said.
RBI Governor Shaktikanta Das said the economic growth, which slumped to a negative 23.9 per cent in the April-June quarter, will turn positive only in the final January-March quarter. The RBI saw inflation easing close to the targeted range of 4 per cent, plus or minus 2 per cent, in the fourth-quarter ending March.
The governor noted that the recent pick-up in inflation is due to supply disruption and higher markups during the lockdown. Going forward, as supply chains are restored, inflation could ease to 4.5-5.4 per cent in the second half of FY2020-21.
According to Devarsh Vakil, Deputy Head Retail Research, HDFC Securities, the aggressive accommodative policy of the central bank supported bond and rupee. The weakness in dollar index, stronger domestic equities and foreign fund inflows altogether backed rupee gains. Going ahead, the risk-on sentiments and US fiscal stimulus announcement will direct the global market.
Vakil further said that spot USDINR is having resistance at 74 and support at 72.90.