Repo Rate Hike On Cards As RBI Works Out Plan To Support Rupee
· Free Press Journal
The Reserve Bank of India (RBI) is considering all possible measures, including a potential interest rate hike, as the rupee continues to weaken sharply against the US dollar.
The central bank is closely monitoring the currency market and may take stronger action if the rupee’s fall starts affecting inflation and financial stability, according to a report by Bloomberg.
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The rupee has come under pressure mainly because of rising crude oil prices, foreign fund outflows, and global uncertainty linked to the ongoing conflict in West Asia.
Govt Considers RBI Proposal To Cut Taxes On Foreign Investments In Domestic Bonds To Support RupeeThe RBI has already been intervening in the foreign exchange market by selling dollars to control excessive volatility. However, policymakers are also discussing additional steps, including tightening liquidity and raising interest rates if needed.
The policy meeting is scheduled for June 3.
RBI Governor Sanjay Malhotra has held meetings with other officials to decide on the regulator’s upcoming steps to support the rupee.
Other than raising the repo rate, the regulator is also considering raising dollars overseas through a deposit scheme for NRIs and selling sovereign dollar bonds, according to the report.
A weaker rupee increases the cost of imports, especially crude oil, fertilisers, and other essential commodities. This could push inflation higher at a time when oil prices have already surged sharply due to the West Asia conflict and disruption in supply routes.
Rupee Recovers 41 Paise To 96.45, Sensex Gains 328 Points On US-Iran Peace Talks HopesThe RBI is concerned that continued pressure on the rupee may worsen India’s current account deficit and increase imported inflation.
The central bank is also monitoring the impact of rising US bond yields and a stronger dollar, which have triggered foreign investor selling in emerging markets like India.
According to the report, officials believe that India’s macroeconomic fundamentals remain relatively strong compared to many other economies.
However, the global situation has become more uncertain because of geopolitical tensions and volatility in commodity prices.
The central bank has already taken several steps in recent months to support the rupee and ensure adequate liquidity in the financial system. Market participants are now closely watching the RBI’s next moves as pressure on the domestic currency continues.