Indian rupee slips to ₹96.78 as RBI turns more hawkish
What's the story
The Indian rupee has weakened against the US dollar, closing at a five-month low of ₹96.78 per dollar. This is down from its previous close of 96.43 per dollar. The decline comes amid strong demand for the greenback and heightened global uncertainty, which are putting pressure on India's domestic currency market. The rupee has weakened 1.7% in three months and 2.2% in one month against the dollar.
Policy impact
Rupee's decline comes after RBI's rate hike
The rupee's decline comes as investors digest the Reserve Bank of India's (RBI) October monetary policy decision.
The central bank raised the repo rate by 25 basis points to 5.5% from 5.25%, and changed its stance from "neutral" to "calibrated tightening."
This is the first rate hike by RBI since February 2023, aimed at tackling inflation risks.
Market forecast
After depreciating over 2 sessions, currency could see some stability
Dilip Parmar, a research analyst at HDFC Securities, said the RBI's shift to a more hawkish position with calibrated tightening is one of the key reasons for the rupee's weakness.
However, he also noted that after depreciating over two sessions, the currency could see some stability.
Forex traders said market participants built short positions in morning trade, putting pressure on the rupee.
Currency intervention
RBI intervenes to prevent sharper depreciation
Anil Kumar Bhansali, head of treasury at Finrex Treasury Advisors LLP, said the RBI was seen selling dollars around 96.45 to prevent a sharper depreciation in the currency.
The Indian rupee has weakened over 4% against the US dollar in six months amid geopolitical tensions in West Asia.
During periods of heightened uncertainty, investors typically reduce exposure to emerging-market currencies and move toward safer assets such as the US dollar.