Indian rupee nears record low despite RBI hike, governor says markets can be irrational

Business Recorder reported that the Indian rupee dropped to a five-month trough on Wednesday and came near its record low, even though the Reserve Bank of India lifted its repo rate to 5.5%, a 25 basis point increase. The move was the first in almost four years, and the central bank also changed its stance to calibrated tightening, hinting at further hikes. Traders said the guidance lacked enough hawkish force to support the currency, which finished 0.4% lower at 96.7750 per dollar.

Governor Sanjay Malhotra called short-term market moves irrational when asked why forecasts and hedging still pointed to rupee weakness. He suggested the currency may be undervalued on several measures, including the real effective exchange rate. Reuters-polled analysts see the rupee staying near record lows over three to six months. This year it has ranked second worst in Asia, weighed down by foreign portfolio outflows, pricier oil and rising global bond yields.

ANZ FX strategist Dhiraj Nim said the lasting softness in portfolio flows is worrying. The bank foresees two more increases of 25 basis points, with the last one by March 2027.