Rupee Dances to RBI's Tune: Interest Rate Cuts and Forex Moves

The Reserve Bank of India reduced the key interest rate, causing the rupee to initially gain but later fall by 6 paise against the dollar. To stabilize the currency market, RBI announced government bonds purchase and a $5 billion buy-sell swap, despite ongoing rupee depreciation pressures.

The Reserve Bank of India's unexpected decision to cut its key benchmark interest rate on Friday led the rupee to fluctuate, ultimately resulting in a 6 paise decline against the US dollar, closing at 89.95. This move is the first rate change in six months.

Forex traders highlighted that while the rate cut pressures the rupee, the RBI's plan to purchase Rs 1 lakh crore in government bonds and execute a $5 billion buy-sell swap will counterbalance the strain, aiming to stabilize the market amid the rupee's notable 5% decline against the dollar this year.

RBI Governor Sanjay Malhotra clarified the bank's stance by emphasizing its non-intervention in setting a specific value range for the rupee. Additional liquidity measures, alongside strong economic fundamentals, are expected to attract capital flows, maintaining economic stability amid global challenges like high US tariffs.

(With inputs from agencies.)