Just few minutes after RBI surprised experts and entire market, by choosing to maintain a status quo in India's policy repo rate at 6.50%, the Indian rupee entered into massive free fall against US benchmark dollar index at interbank forex market. The decision of the MPC is consistent with the stance of "calibrated tightening" of monetary policy in consonance with the objective of achieving the medium-term target for consumer price index (CPI) inflation of 4%. Well, this was definitely not what Indian rupee traders had expected, as many believed that a rate hike would help manage control in the the domestic currency which has been depreciating since start of 2018, and has emerged as worst performer on EM. 

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Today, was proof as to why many had hoped for a rate hike, as the Indian currency touched an all-time low of 74.290 against the dollar. However, at around 1505 hours, the rupee was trading at 74.130 above 0.345 points or 0.47% against dollar.

Soumen Chatterjee, Director Research, Guiness Securities said, "Rupee hits all time low at 74 to USD as the policy decision works against Interest Rate Parity. However, RBI's focus to support Domestic Growth amid Challenging Global Economic Conditions will gradually support Rupee in near-term."

Before the policy, Anindya Banerjee said, " RBI is expected to raise repo by 25 bps and maintain a hawkish tone. RBI may announce more OMOs to meet demand for liquidity during the festive season. There could be some profit booking correction in USDINR pre and post announcement of rate hikes. However, short of any unexpected announcements, impact of RBI monetary policy remains limited."

Banerjee had also said, "USDINR is expected to open higher around 73.70/75 on spot. Technically, USDINR remains in an uptrend. If the pair manages to sustain above 72.90 on spot, above the last few weeks range of 71.50-72.90, then it can aim for 74.00/74.50 on spot."

RBI in today's policy said, "Tailwinds from the recent depreciation of the rupee could be muted by the slowing down of global trade  and the escalating tariff war."

Abheek Barua, Chief Economist, HDFC Bank on RBI Policy said, "This is a risky move by the RBI since the market was positioned for a rate hike, purely as a rupee defence. In its absence currency and asset markets could see sharper corrections. A narrow focus on inflation targets perhaps not desirable in the middle of a financial crisis. Change in stance suggests that the rate hike could still come in the coming months."