A looming meltdown at Infrastructure Leasing and Finance Company (IL&FS), fears of a worsening current account deficit and overall negative sentiments in the market due to the rising price of crude oil roiled key benchmark indices and took the rupee down to historic low levels.
Adding to the bullish mood, Federal Reserve chairman Jerome Powell said on Wednesday that the central bank may raise interest rates above an estimated "neutral" setting as the "remarkably positive" United States economy continues to grow. "As new data comes in we would look into changing our policies accordingly". The rupee has been performing poorly for the past few months and the rise in repo rate is seen as an attempt by the RBI to curb further price fall.
The 10-year gilt yield stood at 8.061%, down from its previous close of 8.157%. The rupee has depreciated almost 15 percent this year, becoming the worst-performing currency in Asia apart Indonesia and the Philippines. Both the announcements came in the light of the rupee's drop to a record low on Wednesday triggered by a spike in global crude oil prices.
Oil prices firmed near the highest level in nearly four years on expectations of a tighter market once United States sanctions on Iran are effective next month.More news: McConnell claims Democrats are aiming ‘mud and muck’ at Trump nomination Kavanaugh
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Last week, Bangko Sentral ng Pilipinas (BSP) hiked rates by 50 bps to 4.50 percent, adding to the three hikes worth 100 bps since May.
The rupee is trading at 20.17 against the UAE dirham..
Hence, the RBI said that it was vital "to further strengthen domestic macroeconomic fundamentals".
RBI in its monetary meet has left the repo rate unchanged.
A labourer carries an iron pipe at the construction site of a residential complex on the outskirts of Kolkata, October 5, 2018.