Mumbai: The Indian rupee on Thursday pared losses and closed at fresh 20-month high against the US dollar after the Reserve Bank of India (RBI) unexpectedly increased reverse repo rate by 25 basis points.
The rupee closed at 64.54 a dollar—a level last seen on 11 August 2015, up 0.54% from its Wednesday’s close of 64.88. The rupee opened at 65.05 a dollar and touched a high of 64.51 a dollar.
The reverse repo rate was raised to 6% from 5.75%, while the benchmark repurchase rate was kept steady at 6.25% and cut the marginal standing facility (MSF) rate by 25 basis points to 6.50%, the RBI said in a statement.
The RBI policy corridor is now 25 bps and the objective of narrowing the interest rate corridor is to anchor the weighted average call rate closer to the policy repo rate, RBI said.
Analyst said that the continued foreign flows and absence of intervention by RBI driving the currency.
“The hawkish stance of RBI policy and the underlying weakness in dollar will keep rupee around 64-65 levels in the near -term”, said Upasna Bhardwaj, senior economist, Kotak Mahindra Bank
So far this year, rupee gained 5.25% while foreign institutional investors have bought $6.79 billion and $5.34 billion from local equity and debt markets, respectively.
The 10-year bond yield closed at 6.769%, compared to its previous close of 6.649%. Bond yields and prices move in opposite directions.
The benchmark Sensex index fell 0.16% or 46.90 points to closed at 29927.34. So far this year, it has risen 12.5%.
The dollar index, which measures the US currency’s strength against major currencies, was trading at 100.65, up 0.09% from its previous close of 100.56.