Reserve Bank Governor Shaktikanta Das, Here’s How The Monetary Policy Will Impact Rupee

Reserve Bank of India (RBI) Governor Shaktikanta Das announced on February 5, 2021, that the Monetary Policy Committee (MPC) will maintain key policy rates at the existing levels, which lead to the repo and reverse repo rates unchanged. The central bank kept the repo rate unchanged at four per cent and the reverse repo rate steady at 3.35 per cent. The RBI Governor also assured that the central bank would continually support the economy’s recovery from COVID-19 by ensuring ample liquidity in the system. The Monetary Policy Committee also projected the real gross domestic product (GDP) growth to be 10.5 per cent in 2021-22 – in the range of 26.2 to 8.3 per cent in the first half, and six per cent in the third quarter. (Also Read: RBI Monetary Policy Highlights: Repo Rate Unchanged, GDP Growth Projected At 10.5% )
 

Will the Monetary Policy Committee policy impact the rupee?

“RBI remains a major buyer of $ in both spot and derivatives market and that is not allowing the Rupee to appreciate inspite of record foreign capital inflows and speculative long positions in the Rupee. A constructive Union Budget, balanced monetary policy and benign global environment may mean that Rupee may remain strong. Over the medium term it may test 72.50 levels,” said Anindya Banerjee, DVP, Currency Derivatives and Interest Rate Derivatives at Kotak Securities.
 

“After the budget, it was obvious that RBI wouldn’t spoil the party. The MPC stance was more over on the lines with our expectations of keeping the repo rate unchanged with accommodative stance. The positive take away for currency market was the growth projection, rupee surged after the real GDP growth was projected at 10.5 per cent for FY22,” said Mr. Rahul Gupta, Head of Research- Currency, Emkay Global Financial Services.

”The USDINR spot’s outlook depends on risk sentiments, which will continue to pick up as nations are lifting travel restrictions. With hopes of liquidity unswerving global economic stimulus we expect the downward trend to continue in USDINR spot. The 72.75 zone is acting as a sticky support a break of which will push prices towards 72.50, while 73.50 will act as a resistance,” he added.