Declining for the third day in a row, the rupee slid by 10 paise to close at 74.94 against the US currency on Thursday after the Reserve Bank of India kept key policy rates unchanged and said it will continue with the accommodative stance.
At the interbank foreign exchange, the rupee opened at 74.90 against the American dollar, and later witnessed an intra-day high of 74.88 and a low of 75.05 against the greenback.
Declining for the third day in a row, the rupee slid by 10 paise to close at 74.94 against the US currency on Thursday after the Reserve Bank of India kept key policy rates unchanged and said it will continue with the accommodative stance.
Market participants were expecting the RBI to hike the reverse repo rate to withdraw excess liquidity and change its stance to 'neutral'. Experts also dubbed the RBI's inflation estimates for the current and the next financial year as 'optimistic'.
At the interbank foreign exchange, the rupee opened at 74.90 against the American dollar, and later witnessed an intra-day high of 74.88 and a low of 75.05 against the greenback.
The local unit finally ended the day at 74.94, down 10 paise from the previous close of 74.84. In the three sessions to Thursday, the rupee has declined by 25 paise amid high crude oil prices.
Meanwhile, the dollar index, which gauges the greenback's strength against a basket of six currencies, was trading 0.01 per cent lower at 95.48.
The RBI MPC kept the benchmark lending rate unchanged for the 10th time in a row at 4 per cent. The Monetary Policy Committee decided to keep the reverse repo rate unchanged at 3.35 per cent.
The RBI surprised markets by unexpectedly keeping the reverse repo intact at 3.35 per cent and guaranteed more support to strengthen the country's economic growth, said Sriram Iyer, the Senior Research Analyst at Reliance Securities.
RBI Governor Shaktikanta Das said that the Monetary Policy Committee continuing with the accommodative policy stance was one of the prime reasons for not hiking the reverse repo rate.
"When the stance continues, we did not see any reason to make any changes or tamper with the rates," Das told reporters.
"Rupee traded weak on RBI policy day wherein status quo was kept unchanged and stance also maintained accommodative. Higher crude prices have kept the pressure on the rupee and were also mentioned by the RBI governor as a cause of concern. The range for your can be seen between 75.75-75.25," Jateen Trivedi, Senior Research Analyst at LKP Securities said.
The commentary of the policy was viewed as more dovish than expected. The central bank expects inflation to ease to 4.5 per cent in the next fiscal year, from 5.3 per cent this year. Many believe that the projections are optimistic.
In the overseas markets, the US dollar was flat in Asian trade ahead of the US inflation data.
"Some quarters of the market were expecting a change in stance to neutral and also a hike in reverse repo rates. However, RBI showed no urgency to tighten money market rates further," Anindya Banerjee, DVP, Currency Derivatives & Interest Rate Derivatives at Kotak Securities Ltd.
"The rupee depreciated against the US dollar after the central bank surprised the market by holding the rate unchanged as traders were expecting a hike in the reverse repo rate. RBI stuck to its dovish tone to ensure economic recovery, diverging from global policy makers' hawkishness," said Dilip Parmar, Research Analyst, HDFC Securities.
The benchmark 10-year bond yield and rupee fell while domestic equities surged in absence of a hike in the reverse repo - the rate at which it absorbs cash from banks.
"Spot USDINR is likely to consolidate in the range of 74.60 to 75.10 following mixed economic signals," Parmar added.
On the domestic equity market front, the 30-share Sensex ended 460.06 points or 0.79 per cent higher at 58,926.03, while the broader NSE Nifty settled up 142.05 points or 0.81 per cent at 17,605.85.
Global oil benchmark Brent crude futures rose 0.14 per cent to $91.68 per barrel.
Foreign institutional investors remained net sellers in the capital market on Wednesday as they offloaded shares worth Rs 892.64 crore, as per stock exchange data.