RBI's repo rate cut fails to boost Indian currency; rupee depreciates against the dollar - Here's why

In the previous closing, the rupee ended at 75.61 against dollar index.

May 22, 2020 12:05 IST India Infoline News Service

Foreign investors were not swayed by the Reserve Bank of India (RBI) policy repo rate cut announcement on Friday, as the Indian currency depreciated by 24 paisa to 75.85 against the US dollar due to massive selloffs in domestic equities.

At the interbank forex market, the local unit opened at 75.72 per dollar, with further weakening to 75.85 per dollar. In the previous closing, the rupee ended at 75.61 against dollar index.

Meanwhile, the USDINR contract has depreciated by 0.36% to 75.79 against the dollar compared to the previous closing of 75.77 per dollar.

Sensex was trading at 30,619.35 down by 313.55 points or 1.01%, while Nifty plunged by over 101 points or 1.12% trading at 9,004.30 at around 12.18 pm.

RBI Governor Shaktikanta Das in a press conference today, trimmed down policy repo rate by 40 basis points. Now the policy repo rate stands at 4% which is the first for India. Similarly, Das slashed reverse repo rate by 40 basis points to 3.35% from previous 3.75%.

In the meeting, it was decided to cut the repo rate by 40 basis points to 4% from previous 4.40%. Das has maintained an accommodative stance in India.

Turning to India's growth outlook, RBI highlights, economic activity other than agriculture is likely to remain depressed in Q1:2020-21 in view of the extended lockdown. Even though the lockdown may be lifted by end-May with some restrictions, economic activity even in Q2 may remain subdued due to social distancing measures and the temporary shortage of labour.

The central bank added recovery in economic activity is expected to begin in Q3 and gain momentum in Q4 as supply lines are gradually restored to normalcy and demand gradually revives.

For the year as a whole, RBI says, there is still heightened uncertainty about the duration of the pandemic and how long social distancing measures are likely to remain in place and consequently, downside risks to domestic growth remain significant.

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