Indian Rupee Trading in Narrow Range as RBI Keeps Rates Unchanged
Foreign Exchange Updates: Pound and Australian Dollar Fell
Rupee trades flat as repo rate stays at 6.8%
The Reserve Bank of India (or RBI) governor Raghuram Rajan kept the repo rate unchanged at 6.8% on February 2, 2016, during the sixth bi-monthly monetary policy as the rupee was trading in a narrow range against the US dollar. The CRR (cash reserve ratio) and SLR (statutory liquidity ratio) were also kept unchanged at 4% and 21.5%, respectively. The RBI eased its monetary policy stance last year as it cut the repo rate by 125 basis points in 2015.
RBI Governor remains cautious before Union Budget
The RBI governor said that the current value of the rupee did not warrant concerns from the central bank, as it is not targeting a specific level for the dollar-rupee currency pair. The RBI has been intervening actively in the foreign exchange market to keep arbitrages in balance. The threat of a depreciating rupee during a slowdown in China and a massive selloff in global markets is expected to prevent the RBI from cutting rates in the near term. Also, the forthcoming budget for fiscal 2016, expected to release on February 29, could impact Rajan’s decision in regards to cutting the repo rate. If the budget points towards an eased fiscal policy, the risk of consumer inflation could shoot up. Rajan expects growth-oriented structural reforms from the finance minister, Arun Jaitley, for the coming budget.
Impact on the market
Indian ETFs were trading on a lower note on February 2, 2016, as the iShares MSCI India ETF (INDA) fell 2.4% while the WisdomTree India Earnings ETF (EPI) declined by 2.5%.
During the same period, the Indian ADRs (American depositary receipts) had a negative day. Tata Motors (TTM) fell by 4.9% and Infosys (INFY) fell by 0.51%. Banking major ICICI Bank Limited (IBN) was trading lower by 5.8%.
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