Stock - Indian Rupee
The dollar's been firming up, and that's getting reflected in the Indian rupee's current levels of around 22.50 to a dirham. In comparison, during April and early May, it was around the 22.2 levels. Image Credit: Bloomberg

Dubai: India's central bank has decided not to go for an interest rate hike, for a second successive time after citing lower risks from inflation and that a clearer path exists to keep pushing for higher growth. The India repo rate remains at 6.5 per cent.

The Reserve Bank of India's decision to retain status quo was widely expected by the markets, with the economy reporting a solid set of numbers, including a lowering of the prickly inflation rate from its highs. The RBI and its Monetary Policy Committee will 'remain vigilant to the evolving situation', said the RBI Governor Shaktikanta Das, while announcing the latest on the rate.

"The persisting financial instabilities in advanced economies of the world may have repercussions in India, causing the RBI to take such a step to face these headwinds. The system liquidity is still in surplus mode and could increase as more Rs2,000 banknotes get deposited in banks."

The Indian rupee has taken the move in its stride, currently at 22.48 to the dirham (82.58 to the dollar). UAE-based remitters will be taking a wait-watch approach in the next few days to see whether a further slipping of the currency will play out. More so as the dollar's been winning back some of its strength in recent days.

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"We weren't expecting a rate hike from RBI and that's how it panned out," said Krishnan Ramachandran, CEO of Barjeel Geojit Financial Services. "With India's inflation and current account deficit under control, the rupee should be stable in the near term.

There is always the likelihood of another rate hike by the US Federal Reserve - and we could see some volatility and weakening of the USD.

- Krishnan Ramachandran

The rupee - which had dropped more than 11 per cent in 2022 - has been relatively stable in the year-to-date, with dollar's weakness playing its part. Some FX watchers reckon the rupee could see a drop to 22.6/22.7 levels if the dollar keeps on the recovery path. "A drop to 83 against a dollar is still within the realms of possibility," said Neelesh Gopalan, analyst at a Dubai-based fintech.

After the 22.2 levels during April, the removal of the 2,000 rupee denomination had a hand in the recent weakening of the rupee. We expect some volatility for the rupee.

- Neelesh Gopalan

India's primary stock market gauge - the BSE - responded favourably to the RBI status quo push, gaining 146 points to 63,289. However, the Indian market ended lower in a choppy session. The 30-pack Sensex closed 294.32 points or 0.47 per cent down at 62,848.64, and the Nifty closed 91.90 points or 0.49 per cent lower at 18,634.50.

"Our job is not yet finished," said Shaktikanta Das, after opting for status quo on repo rate.

Net gain for India's property market

Back-to-back pauses on rate increases will go down well in India's property market. Anuj Puri, Chairman of Anarock Group, definitely buys into that contention.

Given the current unchanged rates, the outlook for those looking to buy their first home via a home loan soon remains favourable. Interest rates from most banks will continue in the single digits.

- Anuj Puri

"With top banks, they currently hover between 8.7-9.65 per cent. A future rate hike, if any, may push the rates into double-digits. The persisting financial instabilities in advanced economies of the world may have repercussions in India, causing the RBI to take such a step to face these headwinds."

“The rupee is expected to trade in a tight range against the dollar over the next three months, close to its historic low. But any hawkish moves from the Federal Reserve on rates could result in the weakening of rupee.

“For the past two months, the rupee traded in a narrow range of 81.61-82.85, as the Reserve Bank of India
possibly intervened to shelter the currency from big swings. Global dollar strength - due to the paring of the Fed rate cut bets from the end of the year and the debate whether the Fed will hike the interest rate again on June 14 - are contributing to the resurgent strength of the dollar, which is putting pressure on the rupee.

“This month, the Rupee is expected to remain in a range of 81.80-83.30, and RBI may look to curb the volatility around 83-83.30 levels. With inflation likely to have eased in May, a dovish stance by the RBI - when other central banks are keeping the doors open for further policy tightening - may result in wider interest rate differentials and a weaker rupee.”

- Spokesperson at LuLu Financial Holdings.