The Indian rupee fell 0.4% to 96.7750 per dollar on Wednesday, nearing its all-time low. Higher oil prices and a hawkish Reserve Bank of India policy caused this slide. A trader said, "The fall reflects a catch-up in domestic positioning and hedging after the RBI's policy decision." More losses seem likely.
MUMBAI, Oct 8 (Reuters) - The Indian rupee's drop after a Reserve Bank of India rate hike and stance change on Wednesday that some economists said was hawkish has left the currency vulnerable to further losses, with higher oil prices adding to pressure.
The rupee fell 0.4% on Wednesday to 96.7750 per dollar, its weakest level since mid-May, just 18 paise shy of its all-time low of 96.96.
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The fall was notable since it came after days in which the RBI had appeared comfortable with only a measured weakening. The slide surprised several market participants, particularly considering that external cues had not deteriorated materially.
"The fall reflects a catch-up in domestic positioning and hedging after the RBI's policy decision," a currency trader at a private sector bank said.
"Yesterday's move has set the rupee up for further losses, and today's session will be key in determining whether the RBI is comfortable allowing the currency to reset to a weaker level."
The 97 per dollar mark will be important for near-term flows, he added, noting that a break past that threshold could prompt importers to step up hedging, while exporters may hold back.
HAWKISH HIKE
Goldman Sachs characterised the RBI's move as a hawkish rate hike, pointing to the change in stance and the central bank's communication. The brokerage expects the repo rate to rise by another 25 basis points in December.
OIL PRESSURE
Brent crude climbed more than $2 to above $102 a barrel on Thursday on persistent worries about supply from the key Middle East producing region amid an increase in attacks on shipping in the Gulf and the Strait of Hormuz.