Likely RBI intervention helps rupee recover from record low

So far this year rupee has declined 13.4% against the US dollar

So far this year rupee has declined 13.4% against the US dollar

In the Forex market, the Indian currency opened at 73.56 against the dollar and after sustaining its strength for some time it ultimately ended up crossing the 74-mark. The rupee has been depreciating to new lows as against the United States dollar along with the global crude prices breached the USD 86 to a barrel mark.

The rupee touched a life-time low of 73.41 against the U.S. dollar as crude prices jumped above $85 per barrel on expectations of tighter supply once the USA sanctions start targeting Iran's petroleum industry from next month.

The Sensex tanked 792.17 points or 2.25 per cent to close at a near 6-month low of 34,376.99, while the Nifty slumped 282.80 points or 2.67 per cent to 10,316.45.

Prakash Sakpal, economist, Asia at ING said that even a hike of 25 basis points is unlikely to help save the rupee, adding that the central bank will need to do more but that looks unlikely on the grounds of on-target inflation and stress in the financial sector. So, will we see them reversing the latest hike - or, will we see something akin to the RBI announcing a hike in rates? Soaring oil prices and the tumbling rupee have pushed India's benchmark yields to near a four-year high and erased more than $300 billion in value from equities since August.

Fed Chairman Jerome Powell said on Wednesday the central bank may raise interest rates above an estimated "neutral" setting as the "remarkably positive" economy continues to grow.

The resolution said actual inflation outcomes have been "below projections" as the expected seasonal increase in food prices did not materialise and inflation, excluding food and fuel, moderated.

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On Friday, the RBI belied market expectations of a rate hike.

In absolute terms, the rupee is down around 17 per cent since January this year.

In terms of foreign funds, provisional data with the exchanges showed that foreign institutional investors sold stocks worth Rs 3,370.14 crore.

A section of banks have a day before the RBI announcement, hiked interest rates.

"The first thing that came to my mind when I saw the decision was that RBI seems to be more confident than the market on the dollar-rupee", Ashish Vaidya, executive director and head of trading at DBS Bank in Mumbai.

The RBI in a move to claim markets held a press-conference chaired by Governor Urijit Patel who said that the rupee is faring better against other currencies that are weakening against the dollar.

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