Rupee Climbs for Fourth Day as Rajan Leaves Key Rates Unchanged

  • All 44 economists in a Bloomberg survey expected no change
  • Ten-year bond yield rises one basis point to 7.48 percent

RBI to Stay Accommodative on Inflation Uncertainties

India’s rupee climbed to a three-week high after central bank Governor Raghuram Rajan left borrowing costs unchanged as widely expected.

Rajan kept the benchmark repurchase rate at a five-year low of 6.5 percent, the Reserve Bank of India said in a statement in Mumbai Tuesday. The move was predicted by all 44 economists in a Bloomberg survey, after data showed consumer-price gains accelerated to a three-month high of 5.39 percent in April. Signs that U.S. rate increases will be gradual have spurred recent gains in emerging-market currencies like the rupee, with India’s faster economic growth and relatively higher bond yields seen as catalysts for foreign inflows.

“The RBI policy was on expected lines and there were no major negative surprises,” said Ankur Jhaveri, co-head of currency and rates at Edelweiss Financial Services Ltd. in Mumbai. Expectations of the Federal Reserve delaying rate hikes are supporting the rupee, he said.

The Indian currency strengthened 0.3 percent in a fourth day of gains to 66.7750 a dollar in Mumbai, according to prices from local banks compiled by Bloomberg. It extended its advance after the central bank’s decision and rose to 66.7225, the strongest level since May 17. Sovereign bonds fell after the central bank said “the inflation surprise in the April reading makes the future trajectory of inflation somewhat more uncertain.”

Bonds Drop

The yield on 10-year notes rose one basis point from Monday to 7.48 percent, according to the RBI’s trading system. The securities pay 576 basis points more than similar-maturity U.S. Treasuries. The “stance of monetary policy remains accommodative,” the central bank said in its statement.

“We expect the market to watch closely the inflation trend and the progress of monsoon,” Ritesh Jain, chief investment officer at Tata Asset Management Ltd. in Mumbai, wrote in a note. “Expecting further easing of policy rates by the RBI looks increasingly difficult, unless food prices fall faster than we expect or oil prices do not rise further.”

Rajan’s rate decision came amid heightened speculation around his fate at the monetary authority, where his three-year term comes to end early September. The RBI chief on Tuesday urged patience regarding his future plans.

“In all such cases the decision is reached after discussions between the government and the incumbent," Rajan told reporters. “I’m sure you will know when there is news. I cannot do better than to point you to the statements of the finance minister and the prime minister on this."

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