Rupee Jumps To Return To 74 Levels Against Dollar After RBI Surprise: 10 Points

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Rupee Jumps To Return To 74 Levels Against Dollar After RBI Surprise: 10 Points

Analysts say the RBI action shows its commitment to aid the economy’s fight against the outbreak

The rupee appreciated by as much as 81 paise to return to early 74 levels against the US dollar on Friday, after the Reserve Bank of India (RBI) lowered the repo rate – the key lending rate – by 75 basis points to support the country against the economic fallout from the coronavirus pandemic. The RBI’s decision followed a three-day meeting of its six-member Monetary Policy Committee, which was originally slated to meet early next month for a bi-monthly review. The RBI also lowered the reverse repo rate by 90 basis points. While repo rate is the key interest rate at which the RBI lends short-term funds to commercial banks, reverse rate is the rate at which it borrows funds from them. Analysts say the measures will make it less appealing for commercial banks to park funds with the RBI and thus boost liquidity.

  1. After starting the day at 74.60, the rupee gained momentum to touch the 74.35 mark against the greenback at the strongest level in the first half of the day, soaring from its previous close of 75.16.

  2. Besides lowering the repo and reverse repo rates by 75 basis points and 90 basis points respectively, the central bank reduced the cash reserve ratio – or the cash that commercial have to mandatorily park with the RBI – by 100 basis points to 3 per cent for one year starting Saturday.

  3. Addressing the media through video conferencing, RBI Governor Shaktikanta Das assured that the central bank will use all measures possible to support the financial stability of the system and revive growth. Liquidity worth Rs 3.74 lakh crore will be injected into system through various measures, he said.

  4. Analysts said the measures showed the RBI’s commitment to aid the already-battered economy’s fight against the coronavirus outbreak, which has impacted businesses across the world.

  5. “The policy action will make it unattractive for banks to park funds with the RBI,” said Abhishek Goenka, founder and CEO of forex advisory firm IFA Global.

  6. Still, some said concerns remain over the degree of the impact of the virus on both Indian as well as global economies.

  7. Domestic equity markets turned volatile after the RBI’s announcements. By afternoon, benchmark indices S&P BSE Sensex and NSE Nifty 50 had turned flat after jumping 3.94 per cent and 4.60 per cent respectively in the first half of the session. 

  8. Brent crude futures – the global benchmark for crude oil prices – were last seen trading up 0.80 per cent at $26.65 per barrel.

  9. The dollar index – which gauges the greenback’s strength against six major peers overseas – was down 0.38 per cent at 98.97.

  10. The 10-year government bond yield was seen at 6.14 per cent, as against its previous close of 6.22 per cent.

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