RBI says hike wasn’t meant to boost rupee

Bloomberg

Reserve Bank of India Governor Urjit Patel signalled that the interest-rate hike was not aimed at defending the rupee. Analysts say that the move will still provide the much-needed support to the currency.
For HSBC Holdings Plc and Nomura Holdings Inc., it bolsters the RBI’s credentials on the inflation-fighting front, which they say will have a rub-off effect on the rupee. Morgan Stanley says it has turned tactically bullish on the currency following the first increase in the benchmark rate since 2014. India’s restrictions on overseas investment in its bond market mean that the link between higher rates and the currency isn’t as strong as in Indonesia and the Philippines, where central banks have tightened policy in a bid to support their exchange rates. Historically, India has seen more inflows into its equity markets, which respond positively to rate cuts.
That said, the rate hike “provides comfort to international investors” in terms of the RBI’s inflation-fighting credentials and “to that extent, it would have a positive sentimental impact for the rupee,” according to Pradeep Khanna, HSBC’s head of global markets trading for India in Mumbai.
Coinciding with a drop in crude oil prices and the global dollar index, the move could help the rupee consolidate between 66.50 to 68 to the greenback over the next few months, he said. The rupee snapped a two-day drop and ended 0.3 percent stronger following the RBI’s decision.