The rupee strengthened to 65.16 against the dollar soon after the RBI policy decision. The RBI has decided to maintain status quo and keep its key interest rate, the repo rate, unchanged at 6 per cent The pause was on expected lines as market consensus had predicted a pause in its cutting cycle.
The rupee sentiment was also buoyed as the dollar retreated globally as attention shifted to the likely composition of the new Federal Reserve board after the incumbent Chair Janet Yellen’s term ends.
The domestic unit opened up by 17 paise at 65.33 at the Interbank Foreign Exchange market today. It hovered in a range of 65.38 and 65.16 before quoting at 65.25, up 25 paise at 3.15 pm local time.
Yesterday, the domestic currency ended lower by 22 paise at 65.50 against the greenback amid rising expectations of a rate hike by the US Federal Reserve.
Meanwhile, the benchmark BSE Sensex was trading up by 169.82 points or 0.54 per cent at 31,667.20.
Bonds slumped on Wednesday, sending yield sharply higher, after the Reserve Bank of India cut the statutory liquidity ratio, or the amount of bonds banks must set aside with the central bank, by 50 bps to 19.5 percent from mid-October.
The decision, announced at the same time the RBI kept the repo rate unchanged at 6.00 percent, is meant to spur banks into lending more, but it would mean increased supply at a time of ample liquidity.
The RBI said it would reduce banks’ statutory liquidity ratio by 50 bps to 19.5 per cent from the fortnight starting October 14.
The benchmark 10-year bond yield rose 8 basis points to 6.70 percent from levels before the SLR announcement.