Rupee drops against US dollar as RBI hikes repo rate to 5.5 per cent

The Indian rupee fell 22 paise to 96.57 against the U.S. dollar in early trade on Wednesday, October 7, 2026, after the Reserve Bank of India raised the key benchmark policy rate by 25 basis points to 5.5 per cent. At the interbank foreign exchange market, the rupee opened at 96.37 before losing ground to 96.57. On Tuesday, the currency had settled at 96.35 against the dollar. The RBI rate hike aims to tame rising inflation amid a continuing West Asia crisis. RBI Governor Sanjay Malhotra stated on Wednesday that the rupee may be undervalued and assured that the banking regulator will support the currency to reach its correct value and prevent excessive volatility.

Market Impact

Market analysts note that the rate hike reflects rising cyclical inflation risks and a hawkish stance by the Monetary Policy Committee alongside higher growth and inflation projections. Meanwhile, the dollar index traded higher by 0.25 per cent at 102.09, and Brent crude oil rose 0.97 per cent to $101.56 per barrel in futures trade. On the domestic equity front, the Sensex fell 149.14 points to 72,918.67, while the Nifty declined 93.45 points to 22,682.65. Foreign Institutional Investors offloaded equities worth ₹2,961.30 crore on a net basis on Tuesday.

Context

Central banks typically raise interest rates to cool down rising price levels in the broader economy, though higher rates can strengthen the local currency or shift borrowing costs. External factors like global crude oil prices and the strength of the US dollar constantly influence exchange rates in emerging markets.