Reserve Bank of India Hikes Rates as Rupee Hits Low

The Reserve Bank of India raised its benchmark repo rate by 25 basis points to 5.50 per cent and shifted its policy stance to calibrated tightening to combat inflation and currency devaluation. The move followed a period of significant volatility where the Indian rupee hit a five-month low of 96.78 against the U.S. dollar.

Indian equity markets reacted with caution, with the BSE Sensex falling 264.97 points and the Nifty 50 declining 0.76 per cent to 22,603.05. Selling pressure was most acute in the auto, realty, and metal sectors, while foreign institutional investors offloaded equities worth ₹6,121.37 crore. The central bank likely intervened in the foreign exchange market on Thursday morning, helping the rupee recover slightly to 96.65.

Economic pressure has been compounded by Brent crude prices exceeding $102 per barrel, driven by tanker attacks in the Strait of Hormuz and reports that the White House requested strike options against Iran. Additionally, India's foreign exchange reserves dropped by $50 billion over three weeks, falling from a September peak of $786 billion. Governor Sanjay Malhotra noted that the rupee may be undervalued by several measures, though financial markets would only find the correct value in the long run.