MUMBAI: The rupee became the first casualty of RBI’s change in monetary policy stance from neutral to calibrated tightening.
The domestic currency might have also felt abandoned by the central bank with Governor Urjit Patel stating that he does not have an exchange rate target band. In absolute terms, rupee is down about 17 per cent since January. Yet, Patel observed that rupee was still better than its emerging market peers.
Minutes after RBI’s disclosures, rupee plummeted to 74.13 against the dollar. It opened at 73.64, touched a fresh low of 74.22 and eventually closed at 73.77 a dollar, 0.25 per cent down from Thursday’s 73.58. Bond yields too felt the tremors, with the 10-year yield closing at 8.025 per cent, 13 bps down from its previous close of 8.157 per cent. “The rupee fall in some respect is moderate in comparison to many other emerging market peers,” Patel said.
Ruling out a target for the currency, he said, “Our response to these unsettled conditions has been to ensure that foreign exchange market remains liquid with no undue volatility. There is no target or band around any particular level of exchange rate, which is determined by market forces’ demand and supply.”
According to him, rupee experienced “bouts of volatility” since the MPC meeting in August. From March-end to September-end, rupee weakened in nominal effective terms by 5.6 per cent. In real effective terms, it fell 5 per cent, Patel said, adding that forex reserves of $400.5 billion as on September were sufficient to finance 10 months of imports. Forex reserves, which touched $426 billion in April, have been declining with RBI intervening in market to stem the rupee fall.