The India rupee dropped today after the nation’s central bank cut its interest rate, including the key Bank Rate. The bank also commented on the strength of the currency, considering it excessive. While the currency was down against the US dollar, it managed to outperform the extremely weak euro.
The Reserve Bank of India reduced several interest rates today, including its main rate that was cut by 25 basis points to 8.5 percent. The central bank made the same reduction in January but refrained from any action in February.
The central bank explained its decision by following considerations:
Given low capacity utilisation and still-weak indicators of production and credit off-take, it is appropriate for the Reserve Bank to be pre-emptive in its policy action to utilise available space for monetary accommodation.
As for the exchange rate, the RBI commented:
The rupee has remained strong relative to peer countries. While an excessively strong rupee is undesirable, it too creates disinflationary impulses.
At the same time, the bank reminded that it does not target any particular exchange rate.
USD/INR rose from 61.7795 to 62.2815 as of 20:07 GMT today. Meanwhile, EUR/INR fell from 69.0417 to 68.9662.
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