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Indian rupee holds on to gains after RBI rate hike

08/05/2022 | 06:46am EDT
FILE PHOTO: Illustration photo of an India Rupee note

(Reuters) - The Indian rupee held on to its gains after the country's central bank on Friday hiked the key interest rate by 50 basis points to cool soaring inflation.

The partially convertible rupee closed up 0.3% to 79.23 per U.S. dollar, having jumped to 78.94 in the session. A rebound in the greenback late in the day weighed, with the rupee ending a volatile week little changed.

The Reserve Bank of India (RBI) Governor Shaktikanta Das said the monetary policy committee decided to raise the repo rate to 5.40%, adding that it believed inflation had peaked and domestic growth remained robust.

"With the outlook that inflation will likely soften, and only if inflation risks don't flare up again, this probably implies that hikes of a smaller size are likely in the upcoming meetings," ANZ Research analysts wrote in a note.

"While the rupee isn't a stated policy target for the MPC, it has likely played an indirect role in today's decision in our view, given its weakness has exacerbated imported inflation."

Analysts don't expect any further sharp falls in the rupee if the RBI stays on a tightening path. The currency has depreciated more than 6% this year like most of its emerging market peers, with the RBI stepping in occasionally to curb the volatility.

Das said the bank was watchful of maintaining rupee stability but it did not favour any particular level.

Optimism over the economy also pushed Indian stocks higher, while India's benchmark 10-year bond yield firmed to 7.29%. [IN/]

(Reporting by Anushka Trivedi in Mumbai; Editing by Saumyadeb Chakrabarty)

By Anushka Trivedi


© Reuters 2022
Stocks mentioned in the article
ChangeLast1st jan.
AUSTRALIAN DOLLAR / INDIAN RUPEE (AUD/INR) -0.32% 52.526162 Delayed Quote.-1.85%
BANK OF INDIA LIMITED -1.37% 46.75 End-of-day quote.-8.96%
CANADIAN DOLLAR / INDIAN RUPEE (CAD/INR) 0.17% 59.503 Delayed Quote.1.54%
EURO (B) VS INDIAN RUPEE SPOT (EUR/INR) -0.10% 78.3769 Delayed Quote.-7.48%
NIFTY 50 -0.05% 17007.4 Delayed Quote.-1.95%
NIFTY 500 0.01% 14727.3 Delayed Quote.-1.80%
US DOLLAR / INDIAN RUPEE (USD/INR) 0.12% 81.707 Delayed Quote.9.11%
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