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Indian rupee falls 46 paise to 62.23 on rate hike

The rupee opened lower on the Interbank Foreign Exchange Market, at 62.05 a dollar, but after the rate hike it fell to 62.61 before recovering some ground at the fag end.

BT Online Bureau   Mumbai     Last Updated: September 20, 2013  | 18:35 IST
Rupee falls 46 paise to 62.23 on rate hike

The Indian rupee fell 46 paise to close at 62.23 against the US dollar on Friday, in line with a sharp decline in local stocks, after a surprise hike in a key lending rate by the Reserve Bank of India (RBI).

Governor Raghuram Rajan also partially eased liquidity-tightening measures that were introduced in July to curb volatility in the currency market.

Rajan, in his maiden mid-quarter monetary policy review, unexpectedly raised the short-term lending (repo) rate to 7.5 per cent, seeking to tame inflation. The cash reserve ratio was unchanged.

The rupee opened lower on the Interbank Foreign Exchange Market, at 62.05 a dollar from 61.77 previously, and reached a high of 61.88. After the rate hike, the local currency fell to 62.61 before recovering some ground at the fag end to close at 62.23, a drop of 46 paise or 0.74 per cent.

Fresh dollar demand from importers and some banks put pressure on the rupee while heavy equity investments by foreign institutions restricted the fall to some extent.

The rupee had climbed 161 paise on Thursday after the US Federal Reserve decided to continue its bond-buying programme, easing fears of an immediate outflow of capital from emerging markets, including India.

"The RBI seems to be confident that further weakening to the rupee would be protected in the near term," said Raghu Kumar, co-founder of RKSV Securities. "Thus, the RBI is focusing on bringing down inflation and bringing stability to the rupee by being hawkish with its policies through monetary tightening."

RBI's decision surprised the stock markets and the benchmark BSE Sensex ended 383 points lower. Foreign institutional investors bought a net $567.27 million of shares on Thursday.

With inputs from PTI

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