Emerging market central banks including Indonesia, Argentina, Philippines and Turkey have raised rates to contain inflation pressures and currency weakness with the US Federal Reserve set to keep raising rates.
"The fall in the rupee led to a sharp rise in government bond yields, due to increasing expectations that the RBI's monetary policy committee (MPC) could go for a bigger rate increase than expected on Friday", V.K. Sharma, Head PCG & Capital Markets Group HDFC Securities. Five of the six panel members voted to leave the rate unchanged. Of 15 economists surveyed by Mint, 14 expected the RBI to raise the repo rate, the rate at which it lends to commercial banks, to 6.75%.
Mumbai: The rupee on Friday fell past the 74-mark to hit at a fresh low against the dollar after the Reserve Bank of India changed its stance to "calibrated tightening" from "neutral" earlier.
The Indian rupee is the worst performing Asian currency this year, having lost more than 13 per cent.
Consistent dollar demand from importers, mainly oil refiners, following higher crude oil prices, kept the rupee under pressure.
US Treasury yields jumped to multi-year peaks on Wednesday, with the 10-year yield reaching a seven-year high after Wednesday's robust data bolstered the case for the Fed to raise interest rates again in December and beyond.
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Last week, Bangko Sentral ng Pilipinas (BSP) hiked rates by 50 bps to 4.50 percent, adding to the three hikes worth 100 bps since May.
Oil prices stood around four year highs on Thursday.
Hence, the RBI said that it was vital "to further strengthen domestic macroeconomic fundamentals".
Gandhi Wednesday hit out at Prime Minister Narendra Modi questioning his silence over the falling value of the Indian Rupee.
A labourer carries an iron pipe at the construction site of a residential complex on the outskirts of Kolkata, October 5, 2018.