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Rupee Falls As RBI Cuts Rate (USD/INR)

Published: 7 Oct at 4 PM Tags: Dollar, Pound Sterling, America, UK, USA, India,

Over the last few weeks political uncertainty in the US and the new Governing hand of the Reserve Bank of India have helped the Rupee recover ground.

After falling to record lows earlier in the year as the US Federal Reserve intimated that fiscal stimulus could be tapered in the autumn/winter of 2013, the Rupee has recovered roughly 11 per cent.

Now, in a sign that the RBI is starting to feel more comfortable with the Rupee’s stabilisation the central bank has opted to slash the marginal standing facility rate from 9.5 per cent to 9 per cent.

This action comes after last month’s shock decision to increase the repo rate to combat elevated inflation.

After the decision was announced the Rupee shed 0.6 per cent against its US counterpart and is currently trading in the region of 61.7900 Rupee per Dollar.

However, the RBI may have acted too soon. According to Bank of America Merrill Lynch, if the US does default the Rupee could tumble and push back towards the record-low 68 Rupee per Dollar level.

According to economists with BofAML; ‘This assumes that the global shock would pull export growth down to zero. The INR could then test R68/USD as the US Dollar will then spike on risk aversion.’

However, few industry experts perceive the default as a likely event, instead betting that the government will raise the debt ceiling in time.

In other currency news, Sterling was able to recover some of the losses sustained by the currency last week as a report revealed an increase in UK financial optimism.

While the positive news helped the British currency recover lost ground, some industry experts believe the Pound is still trading too strongly and see it weakening to 1.55 against the US Dollar before the close of 2013.

The Pound is currently trading against the US Dollar in the region of 1.6079
As of Monday, 7th October 2013, the Pound Sterling currency rates mentioned within this news item were as follows:

GBP USD exchange rate was 1.6091, and GBP INR exchange rate was 99.1645.
Dominic Lee About Author: (412 Posts)With over ten years experience as an economist – including four years spent as a chief economist with a major currency broker – Dominic has acquired a wealth of knowledge which he uses to forecast market movements. Dominic now works as an independent business advisor and writes for several financial publications.

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