Sat, Oct 06, 2018 - Page 10 News List

Rupee at all-time low against dollar

REPO RATE:Markets had expected the Indian central bank to raise its key interest rate to stem outflows amid US monetary tightening, but the hike did not materialize


The rupee breached 74 to the US dollar for the first time ever yesterday as the country’s central bank surprised analysts by holding interest rates.

The 10-year benchmark yield fell eight basis points to 8.08 percent, while the S&P BSE SENSEX tumbled 2.6 percent to 34,259.82 at 3:21pm in Mumbai, entering a correction after dropping more than 10 percent from a record close in August.

Economists had expected the Reserve Bank of India to hike its key rate as Asia’s third-largest economy grapples with a plummeting currency and soaring oil prices.

However, the bank said that the benchmark repo rate — the level at which it lends to commercial banks — would remain at 6.50 percent.

Forty out of 49 economists surveyed by Bloomberg News had predicted a rise of 25 basis points.

The hold followed two consecutive rate increases and came as the rupee touched a new record low of 74.10 against the greenback.

The rupee has tanked 14 percent against the US dollar this year as investors withdraw from emerging markets.

The central bank raised rates in June and August, in part to help shore up the currency, which started the year at 63.67 to the dollar.

Higher interest rates can attract greater foreign investment, helping to increase demand and subsequently the value of the country’s currency.

The rupee slump has widened India’s current-account deficit — when the value of imports exceeds that of exports.

India is a massive net importer of oil, securing more than two-thirds of its needs from abroad.

High oil prices have been squeezing the rupee, making it less appealing to investors, analysts said.

Oil prices recently soared to fresh four-yeah highs on expectations that next month’s Iran sanctions will hit global output levels.

India’s economy grew 8.2 percent in the first quarter of the 2018-to-2019 financial year, due to a boost in manufacturing and consumer demand following a downturn blamed on a shock cash ban in 2016.

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