The rupee slid to 97.15 intraday Wednesday in European trading, past the May record of 96.96, even after the Reserve Bank of India’s first hike since February 2023 took the repo rate to 5.50 percent with a “calibrated tightening” stance, per dpa-AFX. The Monetary Policy Committee voted unanimously for the 25bp move, and the bank said rate cuts are off the table in the near term, with policy action ahead being only a hike or a pause. The central bank raised its 2026-27 CPI inflation forecast to 5.2 percent from 5.0 percent, with core at 4.4 percent. Traders called the currency move catch-up positioning after the policy decision, with a firm dollar and Brent above $100 doing the real damage. Governor Sanjay Malhotra said in the post-policy interaction that the rupee may be undervalued on a real effective exchange rate basis and that the RBI’s aim is orderly movement, not a level, while adding that markets can behave irrationally in the short term.
Thursday morning, the RBI appeared to draw its line. Four traders told market reporters the central bank likely sold dollars early, helping the rupee open stronger at 96.68 per dollar, with the aim of preventing a retest of the record low. The 97 level is the next psychological marker: a break would change behavior, with importers rushing to hedge and exporters holding back dollar receipts, widening forward points at the exact moment the energy import bill is heaviest.
Domestic rates face their own test: the RBI has a Rs 36,000 crore G-sec re-issue auction Friday (settlement October 12), the first supply test after the hike, with the tightening bias intact even as the currency battle moves to the FX desk.