The rupee on Wednesday staged a spirited rebound after a two-day fall and ended at a fresh one-month high of 66.92, surging by 23 paise against the U.S. dollar, even as the RBI hiked repo rate by 25 basis points.
Forex market sentiment was buoyed by the Reserve Bank retaining growth forecast for the current fiscal at 7.4% on hopes of further boost to investments and higher consumption.
A spectacular relief rally in local equities also supported the recovery momentum.
However, bond markets reacted negatively, with the 10-year benchmark bond yield shooting to 7.92% from 7.83%.
In a carefully scripted move, the Reserve Bank for the first time in four-and-a-half-years raised key interest rate by 25 basis points to 6.25% — highlighting concerns over inflationary pressures to the domestic economy arising from a steep spike in global crude prices and evolving macroeconomic situation.
The apex bank revised upwards the retail inflation range to 4.8-4.9% in the first half of 2018-19, and 4.7% in the second half, while retained the GDP growth for the financial year 2018-19 at 7.4%.
The six-member Monetary Policy Committee (MPC), however, kept its stance neutral, despite a repo rate increase.
Rising international crude prices have raised concerns on the fiscal front for the Indian economy in form of widening trade and fiscal deficits.
Meanwhile, foreign portfolio investors (FPIs) turned net sellers and sold shares worth ₹157.51 crore yesterday, as per provisional data.
On the energy front, crude prices regained some lost ground after Venezuela raised the prospect of a halt to some crude exports, but gains were capped by reports that the U.S. government had asked Saudi Arabia and some other OPEC producers to increase output.
Brent crude futures, an international benchmark, is trading up at $75.23 a barrel, in early Asian trade.
The rupee opened higher at 67.08 against overnight close of 67.15 at the interbank foreign exchange (Forex) market on fresh dollar selling by exporters and banks.
It later strengthened to hit a fresh intra-day high of 66.90 on the back of easing dollar pressure before ending at 66.92, revealing a strong gain of 23 paise, or 0.34%.
The home unit had briefly touched a low of 67.17 during the day.
The RBI, meanwhile, fixed the reference rate for the dollar at 67.0397 and for the euro at 78.6778.
The dollar index, which measures the greenback’s value against a basket of six major currencies, was down at 93.56.
In the cross currency trade, the rupee fell back against the pound sterling to end at 89.84 per pound from 89.68 and also retreated against the euro to finish at 78.80 as compared to 78.4 earlier.
The local currency, however, maintained its bullish tone against the Japanese yen and closed at 60.74 per 100 yens from 61.18 on Tuesday.
Elsewhere, the euro is trading above the two-week high against the greenback on reports that the European Central Bank will have a live discussion on exiting the QE program in its upcoming meeting amid fading political uncertainty in Italy.
The British pound also strengthened against the U.S. dollar on some positive news that the opposition Labour Party will support remaining the Single Market after Brexit.
In forward market today, premium for dollar softened owing to mild receiving from exporters.
The benchmark six-month forward premium payable in October eased to 110-112 paise from 111-113 paise, while the far-forward April 2019 contract was little changed at 251-252 paise as compared to 250-252 paise previously.
