Rupee likely to be volatile after rate cut by Indian central bank

Muscat: The Indian central bank, Reserve Bank of India, has cut the Repo rates by 25 bps, a cut in nearly five years in line with the market expectations.

The repo rate is the rate at which the central bank lends money to commercial banks.

Speaking to Times of Oman, R. Madhusoodanan, Executive Advisor to the Board, Global Money Exchange said, this decision may give some respite to the falling rupee against OMR. in the short run.

The INR has depreciated heavily in the past few days and the exchange houses in Oman offered close to 227 against one OMR.

Indian forex market witnessed heavy volatility and INR was under pressure on account of domestic and global factors.

The uncertainty triggered due to US President Donald Trump’s fresh tariff war, continued foreign market outflows etc contributed to the INR fall. The rate cut may provide ample domestic liquidity in the system, he said.

 Going forward, the RBI is expected to go for a market driven pricing for the INR, a strategy that seems appropriate for the current economic landscape, which may likely to benefit the NRIs and Indian Exporters, he added.

This was the first policy meeting of the present RBI Governor, Sanjay Malhotra, since his taking over. The RBI Governor said the real GDP growth for the financial year ending this March has been estimated to be 6.4%. It can be seen that the RBI is complementing the budget reforms and it has prioritised growth over inflation, R. Madhusoodanan said.

While the rate cut results in cheaper credit and enhance credit flow across sectors, helping revive the sluggish GDP growth, investment and employment generation, it may adversely impact the middle class and retirees as the banks may reduce the rate on deposits as well, he said.

Undoubtedly, the unanimous decision of the MPC has generated a positive sentiment across various sectors and is expected to support Indian economic growth, Madhusoodanan added.