Rupee snaps 3-day fall as RBI surprises with rate increase
The rupee posted its biggest single-day gain in over two months on Tuesday, snapping a three-day falling streak after the central bank unexpectedly raised interest rates to bring down consumer inflation.
Investors were also comforted after the Reserve Bank of India (RBI) indicated it did not foresee more near-term policy tightening should retail inflation ease in line with the central bank's projections.
The rupee has had an uneasy relationship with the prospect of interest rate hikes. Although higher rates can make the currency more attractive for foreign investors, too much tightening can dent economic growth, eroding confidence, and in turn hitting stocks.
The rate hike was intended to curb inflation but also comes as emerging markets have been routed in part by expectations the Federal Reserve will continue to wind down its monetary stimulus after concluding its two-day meeting on Wednesday.
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