The rupee appreciated by 11 paise to close at 85.68 against the US dollar on Friday, reversing early losses after the Reserve Bank of India (RBI) delivered a surprise 50 basis point repo rate cut and announced a phased 100 basis point reduction in the cash reserve ratio (CRR).The local unit opened weak at 85.91, down 12 paise from the previous close of 85.79. But sentiment turned sharply positive after the RBI’s unexpected rate action, which supported growth prospects and lifted domestic equities. The rupee touched an intra-day high of 85.66 and a low of 86 before settling higher, PTI reported.“The rupee led the pack among Asian currencies, buoyed by the RBI’s surprise 50 basis point rate cut. This decisive, growth-driven policy move provided a significant boost to the local currency and fuelled optimism among domestic equity investors,” said Dilip Parmar, Senior Research Analyst at HDFC Securities.At the policy briefing, RBI Governor Sanjay Malhotra said the decision to move to a ‘neutral’ stance from ‘accommodative’ reflected a data-dependent outlook going forward. He added that the economy remained resilient, with foreign reserves strong enough to fund 11 months of imports and cover 96% of external debt.The surprise CRR cut is expected to inject additional liquidity into the banking system, lowering borrowing costs and aiding credit transmission. Anurag Mittal, Head of Fixed Income at UTI AMC, called the move “pre-emptive and precise,” noting that the central bank’s intent to fast-track transmission was clear despite existing surplus liquidity.The RBI retained its GDP growth forecast for FY25 at 6.5%.Despite the rate-induced rally, analysts warned of external risks. A rising dollar index, up 0.25% to 98.98, and weakening Asian currencies could limit further gains for the rupee. Brent crude futures slipped 0.26% to $65.17 per barrel.“Any further rate cut by the RBI may also pressurise the rupee. However, a positive tone in the domestic markets may support the domestic currency at lower levels,” said Anuj Choudhary, Research Analyst at Mirae Asset Sharekhan. He expects the USD-INR pair to trade between 85.40 and 86.25 in the near term.Equity markets reflected the upbeat sentiment. The Sensex closed 747 points higher at 82,189, while the Nifty crossed the 25,000-mark to end at 25,003, up 252 points. Foreign institutional investors were net buyers, purchasing equities worth Rs 1,009.71 crore, exchange data showed.
