Rupee ended lower, Pound higher vs. Dollar

Thursday,   06-Aug-2020   02:45 PM (IST)

The Indian rupee ended the session lower at 74.93/94 levels compared to its opening at 74.82/83 levels amid the Monetary Policy Committee's decision to leave key policy rates unchanged and a rebound in the dollar index. Rupee traded in the range of 74.79-74.96 levels today. India’s Monetary Policy Committee today kept its key policy interest rate unchanged at a record-low amid quickening inflation, but left the door open for more easing to revive growth in an economy stricken by the coronavirus pandemic. The six-member MPC unanimously held the repurchase rate at 4% and the reverse repurchase rate at 3.35%. It had cut the repurchase rate by a total of 115 basis points since late March after the government imposed a nationwide lockdown to curb the virus outbreak. It also voted to continue with the accommodative stance as long as necessary to revive growth, while ensuring inflation remains within target. Despite a pause in rates, the benchmark BSE Sensex was up 1%, after the central bank permitted a one-time restructuring of loans, amid the ongoing coronavirus crisis that is hitting businesses hard. Other Asian equities and currencies were broadly mixed. At 2:14 pm, the S&P BSE Sensex was trading at 38,058 up 394 point, while the broader Nifty50 was at 11,207 up 105 point. Indian government bond yields jumped, with the benchmark yield ending at its highest level in five weeks, after the nation’s rate-setting panel left key policy rates unchanged and there were no indications of any unconventional measures by the central bank. In the forward segment 1mth, 3mth and 6mth annualized premia ended the day at 3.34%, 3.51% and 3.63% respectively.

Sterling strengthened to a new five-month high against the dollar and headed for the $1.32 mark after the Bank of England struck a less pessimistic tone on the outlook for the struggling British economy hit by the COVID-19 pandemic. Much of the gain in the pound came shortly after the BoE announcement. The currency rose as much as 0.5% extending its run to a high of $1.3184, its highest since March 9, before easing a touch to $1.3112, up 0.3% on the day. Against the euro, it rose 0.4% at 90.14 pence, having earlier risen to a high of 90.10 pence. The central bank said the British economy would not recover its size at the end of 2019 size until the end of next year, later than its earlier estimate of a recovery by the second half of 2021. But its projections for 2020 were less grim than in May. Sterling has risen 8% against the U.S. dollar since July, with short positions reducing in the Brexit-battered currency as traders shifted their negative outlook to the dollar. The pound has reversed nearly all the losses sustained against the dollar following the selloff in March and April fuelled by the pandemic though its gains have been more laboured against the euro and the yen. Though the BoE said its policymakers unanimously voted to make no changes to its key interest rate, which stands at just 0.1%, strategists at Citibank noted that by dropping the reference to the lower bound for policy rates, the central bank is potentially opening the door to cutting rates below zero.