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23 Sep 2013
Rupee continues losses on rate hike, October taper would vindicate Rajan
FXstreet.com (London) - The Indian rupee has continued to fall this week, continuing to feel the effects of the Reserve Bank of India’s (RBI) surprise move on Friday to hike rates.
The RBI hiked its benchmark repo rate from 7.25 percent to 7.50 percent. RBI Governor Raghuram Rajan also cut the marginal standing facility rate to 9.5 percent from 10.25 percent and relaxed some capital controls put in place by his predecessor, Duvvuri Subbarao.
The move triggered a drop on the rupee, which has continued into this week. USD/INR currently trades at INR62.5150 after a session low of INR62.4550.
In the medium to long-term the rate hike may have been aimed at protecting the rupee from the effects of any future US Federal Reserve tapering driving flows into higher-yielding currencies. The rate hike came despite the Fed announcing earlier last week that it would hold off on any tapering of its USD85bn monthly asset purchase programme until further strengthening of the US economy. However, Rajan’s decision was vindicated by St Louis Fed president, James Bullard’s comments last week suggesting that a small October taper may be possible.
The RBI hiked its benchmark repo rate from 7.25 percent to 7.50 percent. RBI Governor Raghuram Rajan also cut the marginal standing facility rate to 9.5 percent from 10.25 percent and relaxed some capital controls put in place by his predecessor, Duvvuri Subbarao.
The move triggered a drop on the rupee, which has continued into this week. USD/INR currently trades at INR62.5150 after a session low of INR62.4550.
In the medium to long-term the rate hike may have been aimed at protecting the rupee from the effects of any future US Federal Reserve tapering driving flows into higher-yielding currencies. The rate hike came despite the Fed announcing earlier last week that it would hold off on any tapering of its USD85bn monthly asset purchase programme until further strengthening of the US economy. However, Rajan’s decision was vindicated by St Louis Fed president, James Bullard’s comments last week suggesting that a small October taper may be possible.