The Indian rupee closed flat on Tuesday after making a 3-month high against the US dollar in the intraday trade as investors keenly awaited the outcome Reserve Bank of India’s bi-monthly policy meeting which is due for tomorrow. The rupee gained 15 paise in the early morning trade to hit a 3-month high of 64.2250 against the US dollar at the interbank foreign exchange market on Tuesday. Later in the day, the domestic currency rupee pared gains and fell into negative territory as Reserve Bank of India is all set with its bi-monthly policy meeting outcome on Wednesday while rupee marked a low of 64.4637. The rupee lost 1 paisa to close at 64.3862 apiece US dollar on Tuesday.
The Reserve Bank of India fixed the reference rate of the rupee at 64.3764 against the US dollar today. Earlier yesterday, the rupee recoiled 9 paise to finish at 64.3750 against the US dollar in a highly volatile trade. Recently last week, India’s GDP growth has shown signs of recovery last week at 6.3% but it will not have any bearing on the Reserve Bank of India’s monetary policy decision tomorrow. Analysts say higher inflation, which may even breach its 4% target in the next few months, higher oil prices and the impact of the seventh pay commission would make the central bank to keep the repo rate on hold for the second time, and for the third time in February too.
The DBS group expects the RBI to leave policy rates unchanged following this Wednesday’s MPC meeting. “Our focus will be on the tone of the policy guidance, divided between a neutral or a hawkish bias,” the DBS group said in a note. DBS expects guidance to sound cautious but not outright hawkish. “Markets are currently pricing in 2-3 rate hikes in the year ahead; we, however, don’t believe rate hikes are likely in this timeframe, given our benign inflation forecast,” it added.
The resolution of Monetary Policy Committee (MPC), headed by RBI Governor Urjit Patel, will be made public on 6 December. The central bank had reduced the benchmark lending rate by 0.25% points to 6% in August, bringing it to a 6-year low, however, kept it unchanged in October.
Meanwhile, the much-awaited Foreign Trade Policy midterm review was unveiled on Tuesday, which highlighted the Goods and Services Tax (GST) as a game changer, even as DGFT Alok V Chaturvedi said that the focus is going to be on ease of trading. Aiming to nearly double India’s exports of goods and services to $900 billion by 2020, the government had announced several incentives in the five-year Foreign Trade Policy for exporters and units in the Special Economic Zones in April 2015. The DGFT (Directorate General of Foreign Trade) said that the FTP will continue to have dynamic character and the import-export code was simplified to enable ease of trading.