The Indian rupee made a recovery of 26 paise from its all-time low closing level to reach 87.33 against the US dollar on Friday. It later traded at 87.45 against the greenback after the Reserve Bank of India (RBI) announced a 25 basis point reduction in the repo rate.
Opening at 87.57 at the interbank foreign exchange, the rupee reached an intraday high of 87.33 and a low of 87.57 against the US dollar in morning trade. It was hovering around 87.45 against the US dollar at 12:13 hrs.
Forex traders noted that the market had anticipated the rate cut from the RBI, so the reaction to the news was not as significant. This was the first rate cut by the RBI in nearly five years under the new Governor, Sanjay Malhotra.
The rate cut follows the Finance Minister’s recent budget announcement of major tax breaks to boost consumption and stimulate the slowing economy.
These developments led to a slight uptick in the rupee from its record low of 87.59 against the US dollar on Thursday.
Governor Sanjay Malhotra emphasized that the RBI does not target any specific level or band for the rupee, as the central bank aims to maintain orderliness and stability in the currency exchange rates.
While a rate cut can improve liquidity and attract foreign investments, it may also increase the supply of rupees, potentially weakening the currency further.
India’s foreign exchange reserves stood at $630.6 billion as of January 31, providing an import cover of over 10 months. The dollar index, which measures the greenback’s strength, was up 0.07% at 107.76.
In the domestic market, the Sensex was trading 81.24 points higher at 78,139.40, while the Nifty was up 42.35 points at 23,645.70. Foreign institutional investors offloaded equities worth ₹ 3,549.95 crore on Thursday.
Overall, the market response to the rate cut was muted, with investors cautiously monitoring the impact of these policy changes on the economy and the currency.
