Indian Rupee Slides Ahead of RBI Monetary Policy; Rate Hike and CRR Move in Focus

Mumbai, Oct 7 (PTI): The Indian rupee weakened against the US dollar in early Wednesday trade as investors positioned themselves ahead of the Reserve Bank of India’s (RBI) upcoming monetary policy announcement.

The currency depreciated 10 paise to settle at 96.45 in the interbank foreign exchange market, opening at 96.37 after closing at 96.35 on Tuesday. Traders attributed the sustained pressure to persistent foreign fund outflows from domestic equities and a strong greenback holding near multi-month highs above 102 on the dollar index (DXY).

Market participants are now closely monitoring the RBI’s bi-monthly policy decision scheduled for 1000 hrs on Wednesday. Expectations of a 25 basis point (bps) rate hike are strong, with a 50 bps increase considered a possibility. Additionally, there is speculation that the central bank may raise the Cash Reserve Ratio (CRR) by 1 per cent to 4 per cent to absorb excess liquidity.

“We have the RBI monetary policy meeting today, in which the RBI is expected to raise rates by 25 bps with an outside chance of a 50 bps raise. The RBI may also raise the CRR by 1 per cent to 4 per cent to absorb the excess liquidity,” said Anil Kumar Bhansali, Head of Treasury and Executive Director at Finrex Treasury Advisors LLP.

Bhansali further highlighted the RBI’s anticipated stance on the depreciating currency, which has lost more than 2 per cent in the last month amid sustained oil demand and foreign portfolio investment (FPI) demand for the US dollar.

The anticipated hike would mark the first rate increase in nearly three-and-a-half years, as inflation pressures mount due to the continuing conflict in West Asia. The central bank last adjusted the repo rate in February 2023, raising it by 0.25 per cent to 6.50 per cent. It kept the rate unchanged through 2023-24 before beginning its rate-cut cycle in 2025; the policy repo rate currently stands at 5.25 per cent.

Broader market indicators reflected the prevailing volatility. The dollar index, gauging the dollar against a basket of six currencies, traded at 102.02, up 0.19 per cent. Brent crude futures rose 0.91 per cent to USD 101.50 per barrel.

Domestic equities also recorded declines, with the Sensex falling 460 points to 72,599.05 and the Nifty declining 164.80 points to 22,610.85 in early trade. Exchange data showed Foreign Institutional Investors (FIIs) offloaded equities worth Rs 2,961.30 crore on a net basis on Tuesday.

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