The Indian rupee lost 1.5% on Wednesday, suffering its biggest single-day fall in 20 months as the central bank mapped out plans for a massive government bond buying programme. The partly convertible currency ended at 74.55 per dollar versus its previous close of 74.43, having earlier touched 74.5550, its weakest since Nov. 17. The Reserve Bank of India (RBI) kept interest rates at record lows on Wednesday but its commitment to government bond purchases raised prospects of plenty of rupee liquidity, and potential inflation, both of which undermined sentiment toward the currency.
The Indian rupee posted its first quarterly fall in four on the last day of the 2020/21 fiscal year as a broad rally in the dollar finally rubbed off on the local unit. "Just as INR's artificial relative uptick in mid-March was transient, we think the sharp relative depreciation is more a reflection of reversal of those transient factors than anything structural at play," said Madhavi Arora, lead economist at Emkay Global Financial Services.
The RBI is examining the impact of the digital rupee on the financial stability in the economy.