Rupee surges to close at 2-year high against US dollar

Mumbai: The Indian rupee on Wednesday strengthened past 64-mark to closed over two year high against the US dollar after the Reserve Bank of India’s (RBI) cut policy rates by 25 basis points and maintained its neutral stance as seen by most economists.

The rupee closed at 63.70 a dollar—a level last seen on 22 July 2015, up 0.59%, its maximum gains since 14 March, from its Tuesday’s close of 64.08. The rupee opened at 64.12 a dollar and touched a high of 63.60. So far this year it gained over 6.5%.

Of the 15 economists surveyed by Mint, 11 expected the central bank to cut the repo rate—the rate at which the central bank infuses liquidity in the banking system—by 25 basis points.

“Overall, the RBI’s rate decision and its neutral stance are in line with expectations. The neutral stance suggests that the RBI’s decision-making remains data-dependent” said Nomura Global Research in a note to its investors.

RBI noted that there are several uncertainties to the inflation trajectory such as farm loan waiver impact on state finances and maintained the neutral stance of monetary policy.

Bond yield gained as analyst expects prolong pause from RBI on the expectation of both growth and inflation rising over the next six to 12 months.

The 10-year bond yield closed at 6.464%, compared to its previous close of 6.442%. Bond yields and prices move in opposite directions.

“ Looking ahead, we expect GST-related growth weakness in June/July and a gradual recovery after August, aided by a resumption of production (after initial GST hiccups), ongoing re-monetisation, normal monsoons and easier financial conditions (lower lending rates, ample liquidity). Headline inflation bottomed in June and we expect it to rise gradually to above the medium-term target of 4% on higher food prices and statistical factors (HRA increases, adverse base effects),” the report added,

Gains in the rupee was also supported by continued inflows by foreign institutional investors (FII) in the local equity and debt markets. So far this year, FII’s bought $8.90 billion and $17.51 billion in equity and debt markets respectively.

The benchmark Sensex index fell 0.30% or 98.43 points to closed at 32,476.74. So far this year, it has risen over 22%.