Rupee could hit record low if RBI slows down, traders say


The rupee traded at 79.51 per US dollar, weaker by 0.4% on the day.


The rupee could plunge to a new low against the US dollar if the Reserve Bank of India decides to cut its rate hike on Friday, a trader said.

The RBI is widely expected to raise the repo rate as it continues its fight to keep inflation under control.

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However, economists disagree on the magnitude of the rate hike the RBI will deliver as central banks strive to strike the right balance between inflation and growth.

Estimates range from an interest rate hike of 25 basis points to 50 basis points.

“We think there is a good chance that the rupee will hit a record low tomorrow,” said a trader at a private bank in Mumbai. “An increase of 50 basis won’t do much for the rupee, while anything less than that will put the rupee well below 80.”

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The rupee traded at 79.51 per US dollar, weaker by 0.4% on the day. The local currency hit a record low of 80.0650 on July 19.

Samir Lodha, a managing partner at fx consulting firm QuantArt Market Solutions, thinks the rupee could fall “nearly 80” if RBI raises rates by 25 basis points and will be “virtually stable” in the event of a 0 rate hike. 5%.

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Mr Lodha and the private dealer believe the rupee term premiums are likely to rise slightly higher following the RBI decision.



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