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RBI Vows to Support Rupee After Currency Slips to Five-Month Low

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BANKBARODA₹236.48 1.06%

The Reserve Bank of India has pledged to support the Indian rupee and help it reach its correct value after the currency fell to a five-month low of 96.8450 against the U.S. dollar. The currency ended at 96.7750, down 0.4% from its previous close of 96.42, and is now close to its record low of 96.96 set on May 20. The rupee has lost 7% of its value so far this year.

To help stabilize the currency and address updated inflation and growth projections, the central bank raised its policy interest rate by 25 basis points. This marks the first rate increase since February 2023. Central bank Governor Sanjay Malhotra stated that the rupee is currently undervalued in terms of its real effective exchange rate, adding that the market can be irrational in the short term.

While higher interest rates typically strengthen a currency by attracting foreign capital, the rupee remains under pressure due to a stronger U.S. dollar. Foreign investors have also been withdrawing debt and equity investments from Indian markets. To counter this pressure and cap the currency's decline, the central bank intervened in the foreign exchange market, as capital outflows and a stronger dollar index continue to weigh on the rupee.

Key points

  • The Reserve Bank of India raised its policy interest rate by 25 basis points, its first increase since February 2023.
  • The Indian rupee fell to a five-month low of 96.8450 against the U.S. dollar, down 0.4% from its previous close.
  • The rupee is approaching its all-time low of 96.96, having lost 7% of its value so far this year.
  • Persistent capital outflows from foreign debt and equity investments have kept the currency under pressure.
  • Central bank Governor Sanjay Malhotra stated the rupee is undervalued and vowed to support its orderly movement.

Written by our AI from expert market sources across the web. It can contain mistakes: check the facts before acting on them. Write-ups powered by the free AI API at FreeTheAI.org

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Questions and answers

Why did the Reserve Bank of India raise interest rates?

The central bank raised its policy interest rate by 25 basis points to address updated inflation and growth projections, marking its first rate increase since February 2023.

Why is the Indian rupee falling against the U.S. dollar?

The rupee is under pressure due to a stronger U.S. dollar and persistent capital outflows, as foreign investors withdraw debt and equity investments from Indian markets.

What was the rupee's lowest level against the dollar?

The rupee fell to a five-month low of 96.8450 and ended at 96.7750, which is near its all-time low of 96.96 hit on May 20.