US dollar higher versus Indian rupee following RBI rate decision

US dollar was trading higher against the Indian rupee during Fridays light trade, after Indian central bank unexpectedly raised its benchmark repurchase rate in attempt to curb inflation rate.

USD/INR reached a session high at 62.995 at 9:00 GMT, after which consolidation followed at 62.505, still gaining 0.50% for the day. Support was expected at September 19th low, 61.610, while resistance was to be encountered at September 19th high, 63.585.

Earlier today the Reserve Bank of India (RBI) unexpectedly increased its benchmark repurchase rate by a quarter percentage point to 7.5%, which was the first rate raise since 2011. RBI Governor Raghuram Rajan, who took office two weeks ago, was intending to curb the inflation rate, which could pose a threat to the poor economic prospects. Indian rupee was the third worst-performing Asian currency after the Japanese yen and Indonesian rupiah, depreciating 12% during this year, as investors abandoned countries with widening deficits on their current accounts.

However, yesterday the Indian currency reached its highest point against the US dollar since August 16th at 61.6450, as market sentiment was still dominated by Federal Reserves lack of action regarding its stimulus program. The rupee was poised to record a 2.2% gain on a weekly basis.

“Asian currencies’ strength this week has a lot to do with the Fed’s decision not to taper quantitative easing,” said Nizam Idris, the head of fixed income and currency strategy at Macquarie Bank Ltd. in Singapore, cited by Bloomberg. “It gives countries with worsening current accounts more time to get their houses in order.”

In the mean time, the greenback was gradually recovering from its sharp decline against peers on Wednesday after the Federal Reserve Bank abstained from introducing a change in its easing program of 85 billion USD per month. This decision underscored Chairman Ben Bernanke’s willingness to do anything to lower unemployment and pushed back market expectations for a tightening of policy. Bernanke said at the press conference after the FOMC meeting, that the central bank must determine its policies based on “what’s needed for the economy,” even if it surprises global markets.

Elsewhere, the Indian currency was lower against the euro, as EUR/INR cross was gaining 0.67% on a daily basis to trade at 84.139 at 12:13 GMT. GBP/INR pair was also advancing today, up by 0.68% to trade at 99.693 at 12:15 GMT.