RBI maintains status quo; warns volatile oil prices pose risk to inflation


Against this backdrop, the RBI's Monetary Policy Committee will announce its latest policy decision on Friday and an interest-rate increase is likely.

"Despite a stronger dollar, crude oil prices continued to remain very elevated, which is putting further pressure on current-account deficit currencies that rely on oil imports, India and Indonesia specifically", said ANZ's Goh.

The rupee slipped to a fresh record low 73.76 per United States dollar in early trade on Thursday, after settling at a record low of 73.34 on Wednesday. The rupee has been depreciating to new lows as against the U.S. dollar along with the global crude prices breached the USD 86 to a barrel mark.

The Indian rupee closed at 73.58 per USA dollar, 24 paise weaker than its previous close of 73.34.

After a weak start, The BSE 30-share barometer plummeted below the 36,000-mark to hit a low of 35,911.82, finally settling 550.51 points, or 1.51 per cent, down at 35,975.63.

SBI in its research report had said RBI should hike the repo rate by at least 25 basis points to control the value of rupee from falling. The MPC also kept the reverse repo rate the same at 6.25%.

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"USD/INR closed at a fresh all time high of 73.58 but off highs of 73.81 on spot", Rising oil prices, rising US interest rates, hawkish US Fed, NBFC stress are hurting the rupee".

And dollar selling by the RBI to support the rupee has put a further squeeze on rupee liquidity.

India's benchmark 10-year sovereign yield fell to 8.04 per cent. Mr. Surendra Hiranandani, Chairman and MD of House of Hiranandani, spoke to Qrius about how sharply the currency and equity market reacted as soon as another rate hike was anticipated to curb inflationary pressures. It has fallen more than 13% since January, making it the worst performing major Asian emerging market currency.

The data in August showed 210,000 jobs created while unemployment was at 3.8%. "This is surprising and contrary to the industry's expectations, which skewed more towards an increase on the back of increasing inflation and depreciation of the rupee", said Anuj Puri, the chairman of ANAROCK Property Consultants.

"The first thing that came to my mind when I saw the decision was that RBI seems to be more confident than the market on the dollar-rupee", Ashish Vaidya, executive director and head of trading at DBS Bank in Mumbai.

THe RBI said the inflation outlook is clouded with several uncertainties.

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