Rupee weakens as RBI keeps policy rates unchanged

Currently RBI is not buying dollars from market : RBI Governor

The rupee weakened against the dollar on Wednesday as foreign institutional investors (FIIs) sold shares in buoyant equity markets after the Reserve Bank of India (RBI) kept policy rates unchanged in its mid-quarter policy review.

The currency closed at 62.11 against Tuesday’s 62.02, according to Bloomberg data. It rose in intra-day trade to 61.77 prior to RBI’s mid-quarter policy review, on expectations of a rise in the repo rate to contain inflation.

However, welcoming RBI Governor Raghuram Rajan’s decision to maintain status quo on the repo at 7.75 per cent, equity markets moved up. FIIs sold shares, leading to demand from their custodial banks for greenbacks. Some demand was also seen from oil companies, foreign exchange dealers said.

Besides RBI’s decision ion key rates, the stance of US Federal Reserve System on future course of bond buying program would also have bearing on rupee-dollar movements.

The Federal Reserve concludes a two-day meeting today, where the U.S. monetary authority will decide whether to reduce its $85 billion of monthly bond purchases.

While many analysts expect there will be no change in the central bank’s program of purchasing $85 billion a month in assets, investors will be looking for, at least, some insight about when a tapering of purchases will begin.

Meanwhile RBI governor Raghuram Rajan, in post-policy media interaction, said India's central bank is currently not buying dollars from the forex market to increase its foreign exchange reserves.

RBI is not targeting an exchange rate and, therefore, not going into the market and buying reserves at this point to increase the foreign exchange reserves, Rajan said The increase in reserves thus far have come from swap windows, he said, referring to the two concessional forex swap facilities opened by the central bank during the rupee crisis.

Bond yields soften
With the Reserve Bank of India (RBI) keeping the key policy rate unchanged, yields on government bonds softened on Wednesday. The yield on the 8.83 per cent, 10-year benchmark bond fell to 8.78 per cent from 8.91 per cent on Tuesday.

Call rates end higher
Call money rates ended higher at the overnight market owing to sustained demand from borrowing banks.

The rates ended higher at nine per cent from Tuesday’s 8.75 per cent.

It moved in a range of nine and 8.70 per cent.