The Indian central bank raised interest rates today, a move that was unexpected to most analysts. As a result of such decision, the Indian rupee climbed by the most in more than two months.
The Reserve Bank of India announced today that the policy repo rate under the liquidity adjustment facility and the Bank Rate were increased by 25 basis points to 8.0 percent and to 9.0 percent respectively. The major driver for the unexpected decision was a concern about high inflation. As Raghuram Rajan, RBI Governor, said in the statement:
High inflation weakens the rupee. Inflation is also a tax that is grossly inequitable, falling hardest on the very poor. It is only by bringing down inflation to a low and stable level that monetary policy can contribute to reviving consumption and investment in a sustainable way.
USD/INR fell from 63.3750 to 62.5250 as of 19:06 GMT today.
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