Mumbai, Oct 7: The rupee slumped 40 paise to close at 96.75 against the US dollar on Wednesday, after the Reserve Bank of India raised the key benchmark policy rate by 25 basis points to 5.5 per cent.
Market analysts said the RBI’s rate hike reflects rising cyclical inflation risks, while the shift in stance to ‘calibrated tightening’ alongside higher growth and inflation projections highlights the MPC’s hawkish approach.
At the interbank foreign exchange market, the rupee opened at 96.37 and traded in the range of 96.34-96.84 before eventually settling at 96.75, down 40 paise from its previous close.
On Tuesday, the rupee settled at 96.35 against the US dollar.
“The rupee slid, logging its second-weakest close and trailing most Asian peers after RBI’s hawkish note amid renewed inflation worries jolted sentiment.
“A rebound in crude oil prices and a wave of risk aversion added pressure, leaving dollar bulls firmly in control. In the near term, USD-INR faces resistance at 96.97, with support now shifted to 96.30,” said Dilip Parmar – Senior Research Analyst, HDFC Securities.
The Reserve Bank of India on Wednesday raised the key benchmark policy rate by 25 basis points to 5.5 per cent in a bid to tame rising inflation amid continuing West Asia crisis.
A hike in the short-term lending rate (repo) by the RBI marks a reversal from its previous policy action.
The RBI last hiked the repo rate in February 2023, raising it by 0.25 per cent to 6.50 per cent. It kept the rate unchanged through 2023-24 before beginning its rate-cut cycle in 2025.
Speaking to reporters on a day that saw the local currency inching towards an all-time low of 96.96 against the dollar, Governor Sanjay Malhotra noted that while markets can be “irrational” in the short term, they reflect their right value in the long run.
He said that the rupee may be “undervalued” as per many estimates, but assured that the Reserve Bank of India will ensure that the currency “stabilises” and will support it in reaching its “correct value”.
“By a number of estimates, including the REER (Real Effective Exchange Rate), the rupee is not overvalued; it may be undervalued,” Malhotra said on Wednesday.
Meanwhile, the dollar index, which gauges the strength of the greenback against a basket of six currencies, was trading at 102.28, higher by 0.45 per cent.
Brent crude, the global oil benchmark, was trading higher by 1.34 per cent at USD 101.93 per barrel in futures trade.
On the domestic equity market front, Sensex fell 429.11 points to settle at 72,638.70, while the Nifty slipped 173.05 points to 22,603.05.
Foreign Institutional Investors (FIIs) offloaded equities worth Rs 6,121.37 crore on a net basis on Wednesday, according to exchange data. (PTI)
