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The rupee plunged to a four month-low during trade on Wednesday after the Reserve Bank of India's (RBI) policy announcement. The central bank announced that it will buy 1 lakh crore of bonds in the secondary market this quarter (Q1) under the G-Sec Acquisition Programme 1.0 (GSAP). The Indian currency fell 1.5% to 74.55 against the U.S. dollar, witnessing biggest one-day drop seen since August 2019.

The rupee had closed at 74.43 against the US dollar on Tuesday.

''The Indian rupee has went on to witness steep depreciation towards five-month lows as rising Covid-19 cases in the country have created an atmosphere of lingering uncertainty, posing risks to an already fragile state of recovery,'' said Sugandha Sachdeva, Vice president, Commodity and Currency Research at Religare Broking.

''Besides, the RBI in its monetary policy review has maintained status-quo on policy rates for the fifth consecutive meeting, amid the pressures arising from the second wave of the virus which are likely to crimp demand and hurt the domestic currency. Facing hurdle at 72.20 mark, the domestic currency has reversed course in a rather steep manner and looks poised to witness further depreciation in coming days, even as sustained portfolio inflows are still underpinning the local unit, '' Sachdeva added.

Religare Broking expects the domestic currency's near term support to be pegged at 74.50, while it is expected to trickle down further on the downwards trajectory in case of any breach of the same.

"The forex market wasn't expecting such a dovish stance," said Rahul Gupta, head of currency research at Emkay Global Financial Services. He now expected the exchange rate to trade between 73.50-74.50 rupees per dollar.

As per Bloomberg, the loss on Wednesday has turned the rupee into Asia’s worst performer for the month.

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