MUMBAI – India’s rupee breached 74 to the dollar for the first time everon Friday as the country’s central bank surprised analysts by holdinginterest rates.
Economists had expected the Reserve Bank of India (RBI) to hike its keyrate as Asia’s third-largest economy grapples with a plummeting currencyand soaring oil prices.
But the RBI said the benchmark repo rate — the level at which it lends tocommercial banks — would remain at 6.50 percent.
Forty out of 49 economists surveyed by Bloomberg News had predicted a riseof 25 basis points.
The hold followed two consecutive rate increases and came as the rupeetouched a new record low of 74.10 against the greenback Friday.
The rupee has tanked 14 percent against the dollar this year as investorswithdraw from emerging markets.
The RBI raised rates in June and August in part to help shore up thecurrency, which started 2018 at 63.67 to the dollar.
Higher interest rates can attract greater foreign investment, helping toincrease demand and subsequently the value of the country’s currency.
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The rupee slump has widened India’s current account deficit, when the valueof imports exceeds that of exports.
India is a massive net importer of oil, securing more than two-thirds ofits needs from abroad.
High oil prices have been squeezing the rupee, making it less appealing toinvestors, analysts say.
Prices recently soared to fresh four-yeah highs on expectations nextmonth’s Iran sanctions will hit global output levels.
India’s economy grew at 8.2 percent in the first quarter of the 2018-19financial year due to a boost in manufacturing and consumer demand,following a downturn blamed on a shock cash ban in 2016. – APP/AFP
