Rupee Jumps To One-Month High On RBI's Bullish Growth Outlook

7 June 2018: The rupee stopped at a new one-month high of 66.92, mounting by 23 paise against the US dollar after a two-day fall even as the RBI increased repo rate by 25 basis points. Reserve Bank retained the growth forecast for the current fiscal at 7.4 percent on hopes of a further boost to investments and higher consumption. A striking relief rally in local stakes also supported the recovery momentum. However, bond markets reacted negatively, with the 10-year benchmark bond yield shooting to 7.92 percent from 7.83 percent.
In a cautiously conceived progress, the Reserve Bank for the first time in four-and-a-half-years inflated key interest rate by 25 basis points to 6.25 percent - 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 reconsidered upwards the retail inflation range to 4.8-4.9 percent in the first half of 2018-19, and 4.7 percent in the second half, while retaining the GDP growth for the financial year 2018-19 at 7.4 percent.
The six-member Monetary Policy Committee (MPC), however, kept its stance neutral, despite a repo rate increase. Enhancing the international crude prices have raised concerns on the fiscal figure for the Indian economy in form of widening trade and fiscal deficits.
Meanwhile, foreign portfolio investors (FPIs) turned net sellers and sold shares worth Rs. 157.51 crore yesterday, as per provisional data. On the energy face, crude prices reacquired some lost ground after Venezuela raised the prospect of a cessation to some crude exports, but gains were capped via reports that the US government had asked Saudi Arabia and some other OPEC producers to increase the output.
Brent crude futures, an international benchmark, is trading up at the USD 75.23 a barrel, in early Asian trade.    The rupee opened higher at 67.08 against the 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 percent. The home unit had briefly reached 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 rupee, however, preserved its compelling tone versus the Japanese yen and ended at 60.74 per 100 yens from 6.18 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 rose against the US dollar on some positive news that the opposition Labour Party will support remaining the Single Market after Brexit.