Rupee breaches 74 as RBI holds rate

RBI Monetary Policy Credible tight monetary policy isn’t “currency defense” to draw in more flows

RBI Monetary Policy Credible tight monetary policy isn’t “currency defense” to draw in more flows

The rupee is trading at 20.17 against the UAE dirham. Bond yields and prices move in opposite directions.

The South Korean won shed around 1 per cent versus to the dollar to its weakest in more than two weeks.

Consequently, the reverse repo rate under the LAF remains at 6.25 per cent, and the marginal standing facility (MSF) rate and the Bank Rate at 6.75 per cent. Indonesia has a large current account deficit stemming from its oil imports.

Repo rate is the rate at which the RBI lends money to banks and is an important tool for RBI to control inflation.

MARKETS ON EDGE The RBI is also expected to assure markets that adequate funds are available after investors panicked when a series of debt defaults by Infrastructure Leasing & Financial Services (IL&FS) led to redemption pressure at other companies in the shadow banking sector.

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The Indian rupee is the worst performing Asian currency this year, having lost more than 13 per cent.

Consistent dollar demand from importers, mainly oil refiners, following higher crude oil prices, has kept the rupee under pressure.

The bank are predicted to act to tackle rising United States interest rates, capital outflows from emerging markets and India's weakening balance of payments and current account deficit. "The rupee hit yet another record low today and in the near term, it doesn't look like there's any respite coming".

"The biggest policy anchor for rupee is high real rates".

"On the basis of an assessment of the current and evolving macroeconomic situation at its meeting today, the Monetary Policy Committee (MPC) chose to keep the policy repo rate under the liquidity adjustment facility (LAF) unchanged at 6.5 per cent", RBI said in a statement on Friday. Higher prices have swollen India's current account deficit, which last stood at around 2.4 per cent of GDP, in the April-June quarter.

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