The Indian rupee had its steepest single-day fall in 20 months as it dropped 1.5% on Wednesday after the Reserve Bank of India laid down plans for a massive government bond buying programme in its first bi-monthly monetary policy for the current financial year.

The rupee ended at 74.55 per dollar compared to its previous close of 74.43. This is the Indian currency’s biggest dive on a single day since 5 August 2019.

“One impact of the policy today was seen in therupee depreciation, which in the balance is not such a bad thing as the Real Effective Exchange Rate ( REER) of the rupee against the basket of India’s trading partners was already high. This would thus help out exporters,” State Bank of India managing director Ashwini Kumar Tewari told Indianbankingnews.com.

On Wednesday, the Reserve Bank of India (RBI) kept its key policy rate unchanged at 4% but cautioned that the recent surge in Covid-19 infections has created uncertainty over economic growth recovery.

The sentiment against the rupee was driven by the central bank’s commitment to a massive government bond purchase programme. Prospects of abundant rupee liquidity and potential inflation weighed in the currency market.