Rupee ends higher as rate-cut boost for equities blunts dollar strength
The Indian rupee strengthened modestly on Friday as the Reserve Bank of India's steepest rate cut in five years boosted local equities, helping the South Asian currency eke out a gain even as the dollar firmed against major peers.
The rupee closed at 85.6250 against the U.S. dollar, up from its close at 85.79 in the previous session. The rupee declined 0.2% on the week.
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The Reserve Bank of India (RBI) cut its key repo rate by 50 basis points on Friday and slashed the
cash reserve ratio
(CRR) for banks as low inflation gave policymakers room to focus on supporting growth.
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India's benchmark
equity
indexes, the BSE Sensex and Nifty 50, about 1% each on Friday, posting their best one-day gain in two weeks as the rate cut fuelled domestic growth expectations.
India's
benchmark
10-year bond whipsawed between gains and losses as traders digested the central bank's policy moves, including a shift in stance from 'accommodative' to 'neutral.'
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The yield on the benchmark paper was last quoted a tad higher at 6.2237%. Meanwhile, dollar-rupee forward premiums fell in reaction to the rate cut with the 1-year implied yield dropping 10 basis points to 1.81%.
The Indian central bank's "larger-than-expected 50 bps rate cut and 100 bps cut in the cash
reserve ratio
should support INR," DBS said in a Friday note.
"We will consider lowering USD/INR's forecast if the US Federal Reserve pivots towards a rate cut later this year and sets the stage for more
USD
weakness," the noted added.
On the day, the dollar
index
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