Rupee extends gain as RBI cuts repo rate

The rupee opened at 64.12 a dollar and touched a high of 63.60. So far this year it gained over 6.5

The rupee opened at 64.12 a dollar and touched a high of 63.60. So far this year it gained over 6.5

The Reserve Bank of India announced the benchmark repo rate-the level at which it lends to commercial banks-would be cut by 25 basis points to 6 percent, a near seven-year low.

Mumbai: Indian rupee that has been seen among the top performing world currencies has surged to 63.73, a two-year high, against the U.S. dollar, according to NDTV. The bank's previous decision to cut rates came a month before Prime Minister Narendra Modi removed all large-denomination banknotes from circulation, in a shock move to tackle corruption and tax evasion. It was trading at 63.81 per US Dollar during the afternoon hours on Wednesday. "I don't think there will be further rate cuts as far as this calendar year is concerned as they are clearly reiterating the offside risk to inflation".

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. Dealers said that the 25 bps rate cut had already been factored in and since the RBI indicated that inflation was likely to rise going forward, there was nothing to cheer.

Besides, a smooth GST roll-out, expectations of subdued inflation and stable political environment buoyed the demand for the Indian currency.

India Inc was expecting a steeper rate cut from the Reserve Bank today to spur investment and growth.

The rupee also gave up earlier gains to trade at around 63.80 per dollar, close to its levels before the RBI statement.

"If RBI gets confirmation that inflation will remain in the lower territory, there is a possibility of a further rate cut". "With the blessings from monsoon, there was an opportunity to aggressively cut rates in the interest of accelerated growth for the Indian economy".

Consequently, the reverse repo rate under the LAF stands adjusted to 5.75%, and the marginal standing facility (MSF) rate and the Bank Rate to 6.25%.

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