Rupee rallies on hints of steps to curb volatility

Gains 0.7% over previous close

September 12, 2018 09:10 pm | Updated 10:07 pm IST - Mumbai

After touching yet another low in the morning session, the rupee rallied by about 1.5% in afternoon trade on Wednesday following reports that Prime Minister Narendra Modi will meet top policymakers over the weekend to take stock of the situation.

The rupee plunged to 72.92 in the morning — which is an all-time low — compared with the previous close of 72.69 a dollar but staged a strong recovery in the afternoon as it touched day’s high of 71.92. The currency closed at 72.18 to a dollar, gaining 0.7% over it’s previous close.

Hike in interest rate

The rupee jumped most in three weeks after unnamed government officials said the Prime Minister would review the economic situation this weekend and announce measures to curb the decline in the rupee and also rising oil prices. Among the measures, out-of-turn-hike in interest rate by the RBI is not ruled out.

“So, finally some affirmative statement from the government that PM might decide on some fiscal and monetary steps in an economic review meeting,” said Sajal Gupta, head, forex and rates, Edelweiss Securities.

“Post that [news], the rupee appreciated by almost 1.5% from the day’s low. This shall cool off the overheated dollar market and now, market shall be eyeing the actual announcement in coming days,” he said.

Unlike in the past, the interest rates are now decided by a six-member monetary policy committee of the central bank.

For deciding on any rate hike, a meeting of the committee would have to be convened. However, the members can meet electronically and it is not binding on the RBI to announce the schedule of the meeting in advance

Economic Affairs Secretary Subhash Chandra Garg said the government and the RBI would do everything to ensure that rupee does not slide to ‘unreasonable levels.’

“No fundamental rationale for [the] rupee to depreciate to levels we saw till yesterday [Tuesday]. It reflected overreaction of market operators. Government and RBI will do everything to ensure that rupee does not slide to unreasonable levels. Today’s correction seems to reflect that realisation,” he tweeted.

The bullish sentiment in the currency market also spread to the bond market as bond prices rallied and the yield on 10-year benchmark government bond softened from a high of 8.23% to end the day at 8.13% compared with the previous close of 8.18%.

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