Premiums fall, rupee choppy after RBI unexpectedly holds rates
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The Indian rupee moved in a narrow band, while forward premiums declined on Thursday after the Reserve Bank of India (RBI) surprised markets by holding rates steady.
The rupee traded up 0.04% at 81.97 per U.S. dollar by 11:25 a.m. IST, having declined up to 82.0525 immediately after the RBI announced its decision. The currency has held a 15 paisa range so far in the session.
The USD/INR 1-year annualised forward premium tumbled to 2.49%, from 2.60% ahead of the policy decision. The March forward premium declined to 1.930 rupees, from 2.01 rupees.
The RBI held its key repo rate at 6.50%, citing risks to growth following the recent global financial turmoil, after having raised it at each of its six previous meetings.
Most analysts had expected one final 25 basis point hike.
However, the central bank kept its stance at "withdrawal of accommodation" amid elevated core inflation and Governor Shaktikanta Das said the pause was "for this meeting only".
"(The statement) is clearly giving more stress to a fluid and uncertain global situation, implying macro assessments might require appropriate adjustments ahead from a policy perspective," said Madhavi Arora, lead economist at Emkay Global Financial Services.
The "material improvement" in the external sector outlook amid an easing trade deficit has implied support for the rupee from the current account side and has given the RBI some breathing room, Arora added.
RBI Governor Das, in his statement, stressed on maintaining the rupee's stability and announced a measure to deepen forex markets in the country by proposing to permit banks with IFSC banking units to offer non-deliverable derivative contracts involving the rupee to resident users in the onshore market.
