Mumbai: Indian rupee that has been seen among the top performing world currencies has surged to 63.73, a two-year high, against the United States dollar, according to NDTV. Analysts said the decision to lower the policy rate to 6 per cent was largely in line with market expectations.
The dollar had briefly touched a 15-month low against a basket of major currencies on Tuesday, though it bounced modestly on Wednesday. However, eminent banker Deepak Parekh said the RBI's decision to slash benchmark lending rate by 25 basis points is a good move for the economy.
"We look at the policy rate cut as a knee-jerk reaction to the current growth-inflation dynamics". The roll-out of the Goods and Services Tax has been smooth and the monsoon normal.
"If RBI gets confirmation that inflation will remain in the lower territory, there is a possibility of a further rate cut".
Central bank Gov. Urjit Patel, who heads a six-member monetary policy committee, told journalists that the cut in borrowing rates was expected to invigorate investments and provide a push to the prime minister's key scheme to provide housing. Dealers said that custodian banks were seen selling dollars in favour of the rupee throughout the day, likely on behalf of their foreign investor clientele.
Economists were widely split about whether the RBI would cut rates again. After a 10-month pause, the Reserve Bank cut repo rate by 0.25 per cent citing reduction in inflation risk, a move that will lower interest on home, auto and corporate loans. Later, the rupee made a resounding recovery to touch a high of 63.59 following frantic dollar unwinding from speculative traders and foreign banks.
The reverse repo rate was adjusted to 5.75 percent from 6.00 percent.