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India's rupee gained the most in more than two weeks after the central bank announced the biggest interest-rate increase since 2000 to curb inflation. Indian rupee last seen at 42.73 with net gain of 35 Pips. The rupee may extend today's advance as investors regain confidence in India's ability to tackle the fastest price growth in 13 years.
The currency rose from near a 14-month low after the RBI increased the repurchase rate by 0.5 percentage point late yesterday to 8.5 percent and told banks to increase the proportion of deposits kept aside as reserve, the so-called cash-reserve ratio, by a similar margin to 8.75 percent.
There seems to be a sense of emergency in the monetary action, and it should very much be there. This is reasonably positive for the rupee. The central bank announced monetary tightening measures for the second time in two weeks after the inflation rate in Asia's third-largest economy almost tripled this year to touch 11.05 percent in the first week of this month. The Reserve Bank's key repurchase rate is at the highest since 2002.
The rupee's gains were capped by speculation the nation's decision to raise interest rates will fail to reverse losses in the currency this year as a rising oil import bill widens the current-account deficit.
Regards,
Kamlesh Jogi
Commodities Research Analyst.
