RBI Monetary Policy 2018: Indian rupee tumbles as central bank maintains 'no change' stance
RBI Monetary Policy 2018: Indian rupee was trading at 64.978 down by 0.040 or 0.06% against US dollar index.
RBI Monetary Policy 2018: The Indian Rupee tumbled against US benchmark dollar index, after when the Reserve Bank of India (RBI) maintained a status quo in the first bi-monthly monetary policy of FY19. The performance of rupee was also hampered after a list of announcement the central bank made in regards to the domestic currency. At around 1506 hours, Indian rupee was trading at 64.978 down by 0.040 or 0.06% against US dollar index.
In this policy, with a view to develop a deep IRS market that accommodates divergent participants, it is proposed to permit non-residents access to the Rupee IRS market in India. Detailed draft regulation will be issued for public comments by end of May 2018.
RBI says, "Rupee Interest Rate Swap (IRS) market, while it is the most liquid among interest rate derivative markets, still lacks depth to enable large banks to manage risks. Thin participation and consequent absence of divergence of views result in pricing inefficiencies, which further discourages participation. At the same time, it is understood that there is an active market for Rupee interest rate swaps offshore."
Furthermore, RBI even proposed to permit interest rate swaptions in Rupees so as to enable better timing flexibility for those seeking to hedge interest rate risk. The directions will be issued by end of April 2018.
In December 2016, RBI introduced Rupee Interest Rate Options (IRO), following the recommendations of the P.G. Apte Working Group. Only plain vanilla Interest Rate Options were allowed initially
Subsequently, market participants including corporates have expressed the need for swaptions to effectively manage interest rate risk. Fixed Income Money Market and Derivative Association of India (FIMMDA) has conveyed a similar request on behalf of its members, as per RBI.
Thus, where Indian market soared on RBI's decision, the rupee acted in different way.
Policy repo rate under the liquidity adjustment facility (LAF) remained unchanged at 6.0%, along with neutral stance.