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