The Indian rupee breached a key support level on Wednesday, slipping to a five-month low against the US dollar after the Reserve Bank of India delivered a hawkish policy pivot and raised its benchmark repo rate by 25 basis points.
The rupee ended 43 paise lower at 96.78 against the dollar, its second-weakest closing level on record, according to provisional data. The currency opened at 96.37 and moved between 96.34 and 96.84 during the session, before settling sharply lower from Tuesday’s close of 96.35.
The RBI raised the repo rate to 5.50% and shifted its policy stance from neutral to calibrated tightening, signalling that further rate hikes could remain on the table if inflation and economic conditions warrant.
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Jateen Trivedi, VP Research Analyst – Commodity and Currency at LKP Securities, said, “Rupee traded weak, falling around 45 paise to 96.77, after the RBI raised its policy rate by 25 bps. The shift in stance from neutral to calibrated tightening has added to nervousness in the currency market, indicating that further rate hikes could remain on the table depending on inflation and incoming economic data. The rupee is likely to remain under pressure with elevated volatility, with the range seen between 96.45–97.25.”
Dilip Parmar, Senior Research Analyst at HDFC Securities, said, “The rupee slid, logging its second-weakest close and trailing most Asian peers after RBI’s hawkish note amid renewed inflation worries jolted sentiment. A rebound in crude oil prices and a wave of risk aversion added pressure, leaving dollar bulls firmly in control. In the near term, USD-INR faces resistance at 96.97, with support now shifted to 96.30.”
The RBI’s rate hike marks a reversal from its previous policy action. The central bank had last raised the repo rate in February 2023, taking it to 6.50%, before keeping rates unchanged through 2023-24 and subsequently beginning its rate-cut cycle in 2025.
Governor Sanjay Malhotra said the rupee may be undervalued according to several estimates, including the Real Effective Exchange Rate, while stressing that the RBI would work to ensure the currency stabilises and moves towards its correct value.
“By a number of estimates, including the REER (Real Effective Exchange Rate), the rupee is not overvalued; it may be undervalued,” Malhotra said.
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External pressures also weighed on the rupee. The dollar index was up 0.45% at 102.28, while Brent crude rose 1.34% to $101.93 a barrel, raising concerns for India’s import bill and inflation outlook.
The weakness in the currency came alongside a broader risk-off session in Indian equities. The Sensex fell 429.11 points, or 0.59%, to 72,638.70, while the Nifty 50 declined 173.05 points, or 0.76%, to 22,603.05.
Foreign Institutional Investors sold Indian equities worth Rs 2,961.30 crore on a net basis on Tuesday, according to exchange data.
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