MUMBAI: The rupee closed little changed on Friday after the Reserve Bank of India cut policy rates, logging a quiet close to a week which saw the currency fall below 90 per dollar for the first time on worries about dwindling dollar inflows into the economy.
The rupee closed at 89.98 against the US dollar, little changed from its close in the previous session. Over the week, the currency depreciated by nearly 0.6 percent.
A wider trade gap and anaemic investment flows alongside concerns over stalled trade talks with the US have sapped dollar inflows into the world’s fifth-largest economy and made the rupee Asia’s worst-performing currency.
Analysts reckon a turnaround is likely in case New Delhi reaches a trade agreement with Washington.
Meanwhile, the RBI cut rates by 25 basis points on Friday, and left room open for further easing, which pegged the rupee back from its intraday peak of 88.69 and made it a laggard on an otherwise good day for Asian currencies.
“The RBI’s policy announcement, we believe, is likely to have only a transitory impact on the rupee and the trade deal announcement and capital account flows are likely to remain the dominant driver for the currency,” said Sakshi Gupta, principal economist at HDFC Bank.
The bank reckons the rupee could fall to 92 per dollar if a trade deal isn’t reached soon. The RBI is expected to tolerate a weaker currency and only intervene to curb speculative activity, Reuters reported on Thursday.
“We do not target any price level or bands. We believe the markets in the long run are very efficient,” RBI Governor Sanjay Malhotra said in a post-monetary-policy press conference.
Meanwhile, India’s benchmark equity indexes, the BSE Sensex and Nifty 50 rose about 0.5 percent each while the yield on the country’s 10-year sovereign bond eased to a low of 6.46 percent before edging up, comforted by RBI’s rate cut and liquidity measures.
The focus now turns to the US Federal Reserve’s policy decision due on December 10. Money markets widely expect the Fed to cut rates by 25 basis points.
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