RBI likely to raise repo rate again as rupee slide accelerates

RBI likely to raise repo rate again as rupee slide accelerates

RBI likely to raise repo rate again as rupee slide accelerates

"The biggest policy anchor for rupee is high real rates".

Bond yields fell 10 basis points after the RBI unexpectedly kept rates unchanged against a widely expected hike of 25 basis points.

Last month India's Finance Minister Arun Jaitley attributed the weakening of rupee against the dollar to global reasons and said there were virtually no domestic reasons.

The RBI's monetary policy committee (MPC) left the repo rate at 6.50 percent, though 35 out of 64 analysts surveyed by Reuters last week had forecast a rate hike. In a July poll, only 11 of 56 projected the rate to be 6.75 per cent by December.

"However, if oil comes down to $75 a barrel, then the rupee is expected to retract significantly against the greenback", he noted. In a clear indication that it is not yet done with rate increases, the central bank changed its stance to "calibrated tightening" from "neutral" that was in place since February 2017, Bloomberg reported.

The central bank chose to hold the meeting when the country is facing the continuous threat of devaluation of the Indian rupee against the U.S. dollar, rising crude oil prices and liquidity issue.

MARKETS ON EDGE The RBI is also expected to assure markets that adequate funds are available after investors panicked when a series of debt defaults by Infrastructure Leasing & Financial Services (IL&FS) led to redemption pressure at other companies in the shadow banking sector.

The central government and mostly BJP-led states announced a cut in excise and Value-Added Tax rates to reduce fuel prices by 5 per litre.

Meanwhile, the BSE Sensex too plunged by 584.53 points, or 1.66 per cent, to 34,584.63 in late afternoon trade.

One underlying concern is that the RBI's selling of dollars to stem the slide in the rupee has drained Rs 1.5 lakh crore from the banks since April.

Repo rate is the rate at which the RBI lends money to banks and is an important tool for RBI to control inflation.

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