RBI keeps repo rate unchanged at 6.5%

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Federal Reserve Chairman Jerome Powell also stoked the surge in yields this week when he said the central bank could eventually boost its benchmark past the neutral level.

Khoon Goh, head of Asia research at ANZ Banking Group in Singapore said the mix of strong United States data and the Fed chair's comments bumped up the dollar and United States bond yields, putting downward pressure on Asian currencies. Rupee was overvalued on trade weighted real effective exchange rate. Bond yields and prices move in opposite directions. It also hit a fresh 20-year high against the Indonesian rupiah.

Repo rate is the rate at which the RBI lends money to banks and is an important tool for RBI to control inflation.

Research analysts at leading brokerage house told BusinessLine that the negative sentiments could subside even before the RBI concludes its policy meet on Friday as the central bank liberalised norms for external commercial borrowings (ECB) on the first day of its meet.

China's financial markets are closed for the week.

The rupee on Thursday crashed to a historic low of 73.81 to the dollar due to the twin-impact of capital outflows triggered by surging US Treasury yields and crude oil prices racing to a four-year high.

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The Indian rupee is the worst performing Asian currency this year, having lost more than 13 per cent. Both the indices hit their lowest levels in three months.

A rally in crude oil prices is expected to put more pressure on the rupee and it may send it near the 74-mark, said analyst Bhaskar Panda.

Stock market traders and investors are now looking for further cues from the Reserve Bank of India's bi-monthly policy meet, which started on Wednesday and will conclude on Friday. Higher prices have swollen India's current account deficit, which last stood at around 2.4 per cent of GDP, in the April-June quarter.

The trade deficit was at a five-year high of Dollars 18.02 billion in July.

India now imports more than two-thirds of its oil needs.