The rupee closed at a five-month low of 96.7 against the greenback on Wednesday, after the Reserve Bank of India (RBI) shifted its monetary policy stance to “calibrated tightening”.
The currency opened at 96.4 against the dollar and weakened to 96.8 after RBI Governor Sanjay Malhotra indicated that easing was no longer under consideration amid a higher inflation outlook, before recovering some ground by the close of trade.
“The market may be looking for stronger liquidity tightening or direct FX intervention rather than just a rate hike. Hence, the RBI move is structurally positive for the rupee but insufficient to reverse the immediate depreciation pressure. The near-term direction will depend more on RBI intervention, crude oil prices and capital flows, with 97 emerging as an important psychological level,” said Kunal Sodhani, Head of Treasury at Shinhan Bank.
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The surprise change in stance also pushed the benchmark 10-year government bond yield higher by 5 basis points to 7.24 per cent. “The bond market had moved ahead of the RBI. The 10-year government bond yield was already above 7 per cent before [Wednesday], so I don’t expect the hike on its own to push yields significantly higher,” said Nishchay Nath, Founder and CEO of BondScanner.
Equity markets, too, reflected the cautious sentiment. The Nifty50 ended a tad lower at 22,603.05, while the BSE Sensex shed about 0.6 per cent to close at 72,638.70, despite the rate hike being widely anticipated. The Bank Nifty finished around the 55,000 mark, largely flat but under pressure through the session.
“Looking ahead, the market’s focus will shift to the September-quarter earnings season for further direction,” said Vinod Nair, Head of Research at Geojit Investments.