RBI Monetary Policy: Forex investors give thumbs up to rate cut; rupee strengthens

Surprisingly, where market experts and analysts believed a status quo is what forex investors were looking for placing bets on Indian rupee, has reversed its trend. In fact, the Indian rupee has strengthened against US dollar benchmark index at interbank forex market, the moment RBI decided to cut policy repo rate by 25 basis points. The rupee kicked off today’s trading session by depreciating 20 paisa to 71.76 against the dollar. In past two days, the rupee has been trading cautiously ahead of RBI’s policy. 

Now that the outcome is out, rupee has strengthened by over 305 points after it touched the 71.305 mark against US dollar. According to Investing.com data, rupee was trading at 71.375 strong by 0.235 points or 0.33% against dollar. This would be a commendable performance, rupee has touched a level of 71.915 in early tradings. 

Anindya Banerjee, analysts at Kotak Securities expected that, If RBI lowers interest rates, it can knock down the Rupee. That is a risk worth taking as anyways the Rupee in 2019 is not responding to high real rates, as inflows are lacking.

However, the need for a rate cut was also accepted by Banerjee. 

Currently, the policy repo rate stands at 6.25% which was last seen before June 2018 policy. By end of December 2018 policy, policy repo rate had stood at 6.50% at two-year high.

Consequently, the reverse repo rate under the LAF stands adjusted to 6%, and the marginal standing facility (MSF) rate and the Bank Rate to 6.5%. The RBI MPC also decided to change the monetary policy stance from calibrated tightening to neutral.