RBI rates changed from “stance” to “accommodative”

The Rupee strengthened on Thursday in what was an unusual reaction to the Reserve Bank of India (RBI) having cut its interest rate and hinted that more reductions are on the way, but some analysts say the Indian currency will soon be an “underperformer” again. The Reserve Bank of India cut its main interest rate to 5.75% on Thursday, from 6% previously, in a move that had been anticipated by a narrow majority of forecasters only it also went a step further than the market had suggested. Governor Shaktikanta Das said Thursday the bank’s ‘policy stance’ has again changed, this time from ‘neutral’ to ‘accommodative’. In January the stance had been set at ‘calibrated tightening’ as previous governor Urjit Patel and his committee of policymakers had feared a run of higher inflation numbers. This new stance means further interest rate cuts could be on the way during the months ahead, which would be unlikely to the do anything positive for the Rupee even if the Indian currency did rise in response to the latest cut Thursday. Markets care about the Reserve Bank decision because changes in interest rates, as well as the outlook for them, can have a significant influence over international capital flows as well as speculative short-term trading activity. Capital flows tend to move in the direction of the most advantageous or improving returns, with a threat of lower rates normally seeing investors driven out of and deterred away from a currency. Rising rates have the opposite effect.

  • The Indian rupee appreciated this week by 0.20 paisa compared with the previous week close.
  • Last week Indian rupee closed at ₹69.68 with an aggregate loss of 0.14 paisa.
  • This week on Friday rupee closed at ₹69. 47 with the loss of 0.21 paisa.
  • Highest gain 0.42 paisa on Monday and Highest loss 0.21 paisa on Friday.

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