Rupee gains 7 paise as RBI maintains accommodative stance, holds rates
Mumbai, Feb 6 : The rupee on Thursday rose by 7 paise to close at 71.18 against the US dollar after the RBI left the policy rates unchanged but maintained its accommodative stance to boost growth.
Investor sentiments strengthened after the Reserve Bank of India signalled to continue with accommodative stance, while low crude oil prices, weakening of the US dollar and gains in domestic equity market supported the domestic currency, forex traders said.
At the interbank foreign exchange market, the local currency opened on a positive note at 71.22. During the day, it saw a high of 71.11 and a low of 71.30.
The Indian currency finally settled at 71.19, higher by 6 paise against its previous close. The domestic unit had settled at 71.25 against the American currency on Wednesday.
“RBI kept its repurchase rate unchanged at 5.15 per cent, citing higher inflation. That, however, doesn’t mean the end of the rate cut cycle. The stance remains accommodative as RBI pointed out economic activity remains subdued and there is policy space available for future action,” said V K Sharma, Head PCG and Capital Markets Strategy, HDFC Securities.
The six-member Monetary Policy Committee (MPC) in the sixth bi-monthly monetary policy review meet of 2019-20, unanimously voted to keep the repurchase or repo rate unchanged at 5.15 per cent while retaining its accommodative stance.
“The central bank recognised the stagflationary state of the economy, inflation at 5-year high (7.35 per cent) while growth at 6-year low (4.5 per cent),” said Rahul Gupta – Head of Research Currency Emkay Global Financial Services.
“In our view, if inflation falls below the upper tolerance band along with low growth RBI will definitely warrant for a rate cut. But if CPI continues to hover above 6 per cent, despite subdued growth we would see RBI undertaking the unconventional measures with unchanged repo rate,” Gupta said.
Meanwhile, the global crude benchmark Brent futures rose 0.22 per cent to trade at USD 55.40 per barrel.
The dollar index, which gauges the greenback’s strength against a basket of six currencies, rose by 0.03 per cent to 98.32.
The 10-year Indian government bond yield was at 6.45 per cent.
On the domestic stock market front, the 30-share BSE Sensex settled 163.37 points, or 0.40 per cent, higher at 41,306.03. The broader NSE Nifty rose 48.80 points, or 0.40 per cent, to 12,137.95.
Foreign institutional investors purchased equities worth Rs 248.94 crore on a net basis on Wednesday, according to provisional exchange data.
The Financial Benchmark India Private Ltd (FBIL) set the reference rate for the rupee/dollar at 71.2664 and for rupee/euro at 78.6544. The reference rate for rupee/British pound was fixed at 92.7746 and for rupee/100 Japanese yen at 65.12.