Rupee surges 18 paise on bullish RBI growth call, low inflation forecast

The Indian rupee on Thursday recovered from deep overnight losses and ended higher by 18 paise at 64.97 against the US dollar after the RBI lowered its inflation forecast and revised up its growth outlook.

Highly positive market sentiment largely dominated the forex trading from the beginning on the back of cooling of trade tensions between the US and China with global markets stabilising.

A breathtaking rally in domestic equities along with a slew of positive domestic cues including — forecast of a normal monsoon and encouraging services sector PMI data — added to the recovery momentum despite higher dollar overseas.

The home currency touched a high of 64.95 in early trade against the greenback.

The 10-year benchmark bond yield tumbled sharply to 7.13 per cent from its previous close of 7.29 per cent.

The Reserve Bank concluded its two-day monetary policy meeting today, by leaving the key benchmark rate unchanged at 6 per cent for the fourth consecutive time since August last year.

While, the policy outcome was along expected lines, the apex bank outlined for the new fiscal a higher growth rate of 7.4 per cent in the current financial year and lower inflationary forecast at 4.7-5.1 per cent for the first half of the fiscal, boosting overall forex market sentiment.

The rupee opened on a strong note at 65.03 as compared to Wednesday's close of 65.15 at the inter-bank foreign exchange (forex) market on fresh dollar selling by exporters and banks.

It oscillated between a high of 64.95 and a low of 65.13 most part of the day with good amount of volatility in the face of RBI meet outcome.

The local unit finally settled at 64.97, revealing a steep rise of 18 paise, or 0.28 per cent.

Yesterday, the rupee fell 14 paise against the USD.

The RBI, meanwhile, fixed the reference rate for the dollar at 65.0601 and for the euro at 79.7767.

Globally, the dollar rallied against a basket of other major currencies amid hopes that the US and China will reach a compromise to overcome rising trade tensions.

The dollar index, which measures the greenback's value against a basket of six major currencies, was up at 90.08 in early trade.

Meanwhile, crude oil prices steadied on fading trade tensions between the US and China even as a surprise draw in US crude inventories last week supported the market.

In the cross currency trade, the Indian unit recouped against the pound sterling to end at 91.25 from 91.48 and pulled back against the euro to finish at 79.68 as compared to 80.03 earlier.

It also recovered against the Japanese yen to close at 60.68 per yens from 61.35 yesterday.

Elsewhere, the common currency euro drifted to fresh one-week low against the US Dollar after the services PMI report saw sharp deceleration in economic activity in March as both manufacturing and services sectors are cooling off from the cyclical high amid fading US-China trade tensions.

The pound sterling also maintained its downtrend after the UK services PMI fell to the lowest level in last 20 months. The UK services PMI dropped from 54.5 in February to 51.7 in March.

In forward market today, premium for dollar fell sharply owing to sustained receiving from exporters.

The benchmark six-month forward premium payable in August declined to 103.50-105.50 paise from 108-110 paise and the fag-forward February 2019 contract also dropped sharply to 223-225 paise from 230-232 overnight.