Rupee welcomes RBI rate cut by 25 bps with open arms - Heres how the currency reacted against dollar

Unlike Sensex and Nifty, which were performing in red, the Indian rupee showed a whole new trend when RBI trimmed policy repo rate for the third time in a row. In fact, rupee reversed its Thursday's early opening trend, and strengthened against dollar benchmark commendably. At around 1251 hours, the domestic currency was trading at 69.314 up by 0.075 points or 0.11% against dollar at interbank forex market.

After RBI's policy announcement, the Indian rupee appreciated to as much as 69.273 against dollar. In opening trade, the rupee opened at 69.45 per US dollar. Hence, the currency has welcomed RBI's move with open arms. 

Explaining rate cut impact on rupee, Anindya Banerjee, analysts at Kotak Securities said, "When the mood is risk-on, lowering interest rate is generally positive for Rupee due to probability of increase in FPI flows."

In Banerjee's view, rate cut is  very positive for bonds and equity and hence positive for INR. 

Now repo rate under  the liquidity adjustment facility (LAF) by 25 basis points to 5.75 per cent from 6.0 per cent with immediate effect. In last 3 monetary policies, overall 75 basis point cut has been made in repo rate. Consequently, the reverse repo rate under the LAF stands adjusted to 5.50 per cent, and the marginal standing facility (MSF) rate and the Bank Rate to 6.0 per cent.