USD/INR posts modest gains following RBI rate decision
- Indian Rupee edges lower amid the cautious mood.
- The Reserve Bank of India (RBI) is expected to maintain the status quo on the benchmark policy rate.
- RBI interest rate decision and the US Nonfarm Payrolls (NFP) report will be the highlights on Friday.
Indian Rupee (INR) traded on a softer note on Friday as investors turned cautious. Nonetheless, the decline in crude oil prices and foreign inflows might limit the INR’s downside. Following the meeting, the Reserve Bank of India (RBI) Monetary Policy Committee (MPC) decided to maintain the status quo on Friday, keeping the repo rate unchanged at 6.5%.
RBI Governor Shaktikanta Das said that headline inflation has receded from last year’s highs but remains above target in many countries. He further stated that the central bank remains highly alert and prepared to take appropriate action as warranted to anchor inflation expectations.
Investors will shift their attention to the US employment data, including Nonfarm Payrolls (NFP) and the Unemployment Rate. Meanwhile, US Dollar demand and risk aversion in global markets might lift the USD/INR pair in the near term.
Daily Digest Market Movers: Indian Rupee weakens amid the multiple headwinds and uncertainties
- RBI governor Shaktikanta Das announced that five out of six members of the Monetary Policy Committee (MPC) have voted to remain focused on the withdrawal of accommodation.
- RBI’s Das said there had been broad-based easing in core inflation, which is indicative of successful disinflation through monetary policy actions.
- He said that the near-term outlook is clouded by risks to food inflation, which might lead to a rise in inflation in November and possibly December. This should be monitored for potential second-round effects.
- He added that the Indian economy is resilient and has momentum
- Indian CPI inflation is projected at 5.4% for FY24
- The Sensex and Nifty 50 Indian benchmark indexes began the trading sessions with moderate gains. The Nifty 50 opened over 20,900, while the Sensex was close to 69,700.
- According to S&P Global Ratings’ latest report, India is set to be the world’s third-biggest economy by 2030.
- India maintained its position as the world’s fastest-growing major economy, surpassing forecasts with a GDP increase of 7.6% in the September quarter.
- RBI has kept the benchmark policy rate unchanged over the last four monetary meetings. The last adjustment occurred in February 2023, with a 6.5% rate rise.
- US Initial Jobless Claims rose 220K in the week ending December 2 versus 218K prior. Continuing Claims eased to 1.861M from the previous week of 1.925M.
Technical Analysis: Indian Rupee’s outlook remains constructive
Indian Rupee trades softer on the day. The USD/INR pair has remained confined in a trading range of 82.80–83.40 since September. Technically, USD/INR holds above the key 100-day Exponential Moving Average (EMA) with an upward slope on the daily chart, indicating the bullish outlook remains intact. The upward momentum is bolstered by the 14-day Relative Strength Index (RSI), which remains above the 50.0 midpoint.
The immediate resistance level will emerge at the upper boundary of the trading range of 83.40. Further north, the next hurdle is seen at the year-to-date (YTD) high of 83.47, en route to a round figure of 84.00.
On the flip side, the key contention level is at the 83.00 psychological round figure. A breach of this level will lead to the confluence of the lower limit of the trading range and a low of September 12 at 82.80. Further south, the next downside target to watch is a low of August 11 at 82.60.
US Dollar price in the last seven days
The table below shows the percentage change of US Dollar (USD) against listed major currencies in the last 7 days. US Dollar was the strongest against the Euro.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | 0.92% | 0.27% | 0.11% | -0.17% | -3.05% | -0.17% | 0.00% | |
| EUR | -0.93% | -0.68% | -0.83% | -1.12% | -4.02% | -1.11% | -0.93% | |
| GBP | -0.27% | 0.67% | -0.16% | -0.44% | -3.32% | -0.43% | -0.25% | |
| CAD | -0.11% | 0.83% | 0.16% | -0.28% | -3.16% | -0.27% | -0.09% | |
| AUD | 0.17% | 1.11% | 0.44% | 0.29% | -2.87% | 0.01% | 0.18% | |
| JPY | 2.91% | 3.88% | 3.20% | 3.04% | 2.80% | 2.77% | 2.96% | |
| NZD | 0.16% | 1.09% | 0.43% | 0.27% | -0.01% | -2.87% | 0.17% | |
| CHF | -0.02% | 0.90% | 0.25% | 0.09% | -0.17% | -3.07% | -0.19% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Euro from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent EUR (base)/JPY (quote).
RBI FAQs
The role of the Reserve Bank of India (RBI), in its own words, is “..to maintain price stability while keeping in mind the objective of growth.” This involves maintaining the inflation rate at a stable 4% level primarily using the tool of interest rates. The RBI also maintains the exchange rate at a level that will not cause excess volatility and problems for exporters and importers, since India’s economy is heavily reliant on foreign trade, especially Oil.
The RBI formally meets at six bi-monthly meetings a year to discuss its monetary policy and, if necessary, adjust interest rates. When inflation is too high (above its 4% target), the RBI will normally raise interest rates to deter borrowing and spending, which can support the Rupee (INR). If inflation falls too far below target, the RBI might cut rates to encourage more lending, which can be negative for INR.
Due to the importance of trade to the economy, the Reserve Bank of India (RBI) actively intervenes in FX markets to maintain the exchange rate within a limited range. It does this to ensure Indian importers and exporters are not exposed to unnecessary currency risk during periods of FX volatility. The RBI buys and sells Rupees in the spot market at key levels, and uses derivatives to hedge its positions.