The rupee closed lower at 54.86 against the dollar after the Reserve Bank of India left the key policy rates and the cash reserve ratio unchanged in its mid-quarter monetary policy review on Tuesday.

In intraday trade, the local unit breached the 55-level mark and touched a low of 55.05. However, a strong euro helped the rupee to recover some of its losses towards the end of the day.

The local unit opened higher at 54.74 (previous close: 54.85) on anticipation that the central bank might cut key policy rates to spur growth.

Also, the RBI said that the current account and trade deficits were adding pressure on the rupee.

“Even as capital inflows improved compared to Q2, there was downward pressure on the rupee reflecting the large trade and current account deficits,” RBI said in its policy statement.

Inflation control

The RBI has kept inflation control as its top priority in guiding its monetary policy decisions.

The central bank increased the key policy rates 13 times consecutively, before cutting it by 50 basis points in April this year. However, it indicated that it might ease key policy rates in the fourth quarter.

“In view of inflation pressure ebbing, monetary policy has to increasingly shift focus and respond to the threats to growth from this point onwards,” the central bank said.

Call rates, G-Secs

The inter-bank call rates ended flat from Monday’s close of 8.10 per cent.

The 8.15 per cent benchmark government security, which matures in 2022, closed lower at Rs 100.01 from Monday’s close of Rs 100.05. Yields remained unchanged at 8.14 per cent.

satyanarayan.iyer@thehindu.co.in

(This article was published on December 18, 2012)
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