RBI keeps repo rate unchanged at 6.5%

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On Thursday, the USA dollar touched 1.3828 against the Singapore dollar, its highest since Jul 11 previous year. It also hit a fresh 20-year high against the Indonesian rupiah.

Consistent dollar demand from importers, mainly oil refiners, following higher crude oil prices, has kept the rupee under pressure. South African rand, Mexican peso and Australian dollar also dropped up to 1.5%.

A 25 basis point repo rate hike to 6.75 per cent would mean a 75 basis point rise since June, the steepest increase since the last tightening cycle, between September 2013 and January 2014, when India faced its worst currency crisis since the 1990s.

Oil prices have reached four-year peaks as the market focused on upcoming U.S. sanctions on Iran while shrugging off the year's largest weekly build in USA crude stockpiles.

The 10-year benchmark bond yield fell to 8.08 percent from 8.13 percent before the policy was announced, as traders expected a rate hike were caught wrong-footed.

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Foreign institutional investors (FIIs) sold shares net worth a net of Rs 1,842 crore Monday, provisional data showed.

Meanwhile, state-owned oil marketing companies have been allowed to raise $10 billion from overseas market to meet their working capital needs.

"Fuel and gas prices are on fire and markets are scurrying".

The Reserve Bank of India (RBI) is expected to raise rates for a third time since June on Friday to combat inflationary pressures as it grapples with a weakening rupee, surging oil prices and market instability sparked by a major non-bank finance firm's defaults.

Bank of America Merrill Lynch in a report explained that pre-committing Dollars 8 billion a month for it over and above the USD 25-30 billion lost in interventions since April will push the overall forex reserves below the critical eight-month import cover mark. Rupee was overvalued on trade weighted real effective exchange rate.

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