RBI keeps policy rate unchanged in surprise move, rupee tumbles

RBI keeps policy rate unchanged in surprise move, rupee tumbles

RBI keeps policy rate unchanged in surprise move, rupee tumbles

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. It has been continuously pressured this year by higher oil prices.

Emerging market central banks including Indonesia, Argentina, Philippines and Turkey have raised rates to contain inflation pressures and currency weakness with the US Federal Reserve set to keep raising rates.

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

At the Interbank Foreign Exchange (Forex) market, the rupee opened higher at 73.56 a dollar against its previous record low closing of 73.58 on Thursday, but failed to sustain the initial strength and fell back to breach the 74 mark.

Thirdly, worldwide financial markets remained volatile with EME currencies depreciating significantly.

The benchmark Sensex plunged by 527.94 points, or 1.39%, to 35,447.69 in morning deals.

"The RBI policy announcement of keeping rates unchanged is a surprise", said Abhimanyu Sofat, head of research, at brokerage firm IIFL Securities Ltd, adding that if crude prices continue to surge then RBI may have to may have to frontload rate hikes. One economist expected a 50 basis point hike to 7%.

She said: "For bond markets, a 25 bps hike accompanied by a hawkish stance could trigger the 10-year bond yield to rise to 8.25 percent".

The central bank on Monday said it will infuse Rs 36,000 crore via bond purchases this month to meet the festive season demand for funds.

US Treasury yields jumped to multi-year peaks on Wednesday, with the 10-year yield reaching a seven-year high after Wednesday's robust data bolstered the case for the Fed to raise interest rates again in December and beyond.

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