Rupee Slides 43 Paise To 96.78 Against Dollar After RBI Rate Hike, Markets Turn Cautious

The rupee came under fresh pressure on Wednesday, sliding 43 paise to close at 96.78 against the US dollar, after the Reserve Bank of India raised its benchmark policy rate and adopted a more hawkish stance amid renewed inflation concerns.

The domestic currency opened at 96.37 at the interbank foreign exchange market and moved between 96.34 and 96.84 before settling at 96.78. It had closed at 96.35 against the dollar on Tuesday.

Market analysts said the rupee’s decline reflected a combination of the RBI’s policy shift, rising crude oil prices and broader risk aversion. The dollar also strengthened, with the dollar index, which measures the greenback against six major currencies, rising 0.45 per cent to 102.28.

“The rupee slid, logging its second-weakest close and trailing most Asian peers after RBI's hawkish note amid renewed inflation worries jolted sentiment,” said Dilip Parmar, Senior Research Analyst at HDFC Securities. He added that a rebound in crude prices and risk aversion had strengthened the dollar’s position, with USD-INR facing resistance at 96.97 and support at 96.30 in the near term.

The RBI on Wednesday raised the repo rate by 25 basis points to 5.5 per cent, marking a reversal from its previous policy direction. The central bank had last raised the rate in February 2023, taking it to 6.5 per cent, before keeping it unchanged through 2023-24 and subsequently beginning a rate-cut cycle in 2025.

Governor Sanjay Malhotra said the rupee could be undervalued according to several measures, including the Real Effective Exchange Rate. He said markets can behave irrationally in the short term but eventually reflect underlying value, while assuring that the RBI would work to stabilise the currency and help it find its “correct value”.

External pressures added to the strain. Brent crude rose 1.34 per cent to USD 101.93 a barrel, while foreign institutional investors sold Indian equities worth Rs 2,961.30 crore on Tuesday.

Domestic stocks also weakened, with the Sensex falling 429.11 points to 72,638.70 and the Nifty declining 173.05 points to 22,603.05, underlining the cautious mood across Indian financial markets.