Indian rupee stays firm after RBI's 50 bps hike

The Indian rupee was buoyant in morning trade on Friday, after the country's central bank increased the key interest rate by 50 basis points, which was at the higher end of market expectations.

The partially convertible rupee was trading at 79.02 versus the US dollar by 0542 GMT, having broken above the 79 level briefly. The unit had closed at 79.4650 in the previous session.

The Reserve Bank of India (RBI) Governor Shaktikanta Das said the monetary policy committee had decided to raise the key repo rate to 5.40 per cent to tamp stubbornly high inflation, but remained optimistic about domestic growth.

"The policy decision has been more balanced, but front loading continues and a further rate hike is on the cards," Anitha Rangan, an economist with Equirus Group said.

The RBI did not tweak its growth projections so it seems like this rate hike was driven by external factors, such as the US Federal Reserve's moves, to protect the rupee, she added.

The local currency has depreciated more than 6 per cent this year against the greenback like most of its emerging market peers. Before the meeting, markets were split on the likely size of the rate increase, with projections ranging from 25 to 50 bps.

Das in a prepared statement said the bank was watchful of maintaining rupee stability and their interventions using foreign exchange reserves till now have helped contain volatility in the currency.

Markets now await a press conference by the governor that begins at 0630 GMT.

On the day, the rupee was also helped by overnight weakness in oil prices and the dollar.

Meanwhile, India's benchmark bond yields rose to 7.2588 per cent, reversing their declining trend after RBI's hike.