- Indian Rupee trades on a flat note despite the stronger US Dollar.
- India’s Monetary Policy Committee (MPC) kept the repo rate unchanged at 6.5% and maintained its ‘withdrawal of accommodation’ stance, as widely expected.
- Investors await the speech from Fed’s Barkin on Friday for fresh catalysts.
Indian Rupee (INR) trades flat with mild positive bias on Friday despite renewed US Dollar (USD) demand and higher US bond yields. The uptick of the INR is supported by the Dollar sales from local private banks but it pared gains after a dip in buying demand. The Reserve Bank of India (RBI) Monetary Policy Committee (MPC) decided to keep the repo rate at 6.5% for the sixth consecutive time on Thursday.
During the press conference, India’s MPC acknowledged progress on inflation as CPI has started easing. Nonetheless, the ongoing geopolitical tensions in the Middle East, intermittent spikes led by food price volatility, and global interest rate uncertainty were cited as risks to inflation. The markets anticipate the first rate cut by the RBI at the June meeting after the new government is formed.
Investors have reduced their bets on Fed rate cuts in March due to hawkish remarks from Fed officials and strong US economic data. Dallas Fed L. Logan is set to speak later on Friday. In the absence of top-tier economic data from the US, risk sentiment will likely play a crucial role in the USD/INR pair.
India’s inflation data and Industrial Production will be due next week. The minutes of the MPC meeting will be released on February 22. Investors will monitor the developments surrounding India’s inflation trajectory.
Daily Digest Market Movers: Indian Rupee strengthens amid inflation risk
- The decision was not unanimous this time, with the MPC deciding in favor of an unchanged rate by a 5:1 majority. Professor Varma voted in favor of a 25 basis points (bps) cut in this meeting.
- The Reserve Bank of India (RBI) revised GDP growth forecast for FY25 to 7% from 6.5% previously.
- The Reserve Bank of India (RBI) has maintained its inflation projection at 5.4% for 2023–2024 and 4.5% for 2024–25.
- CPI inflation is projected to be 4.5% for the fiscal year 2024–2025, with Q1 at 5%, Q2 at 4%, Q3 at 4.6%, and Q4 at 4.7%.
- The US weekly Initial Jobless Claims fell to 218K for the week ended February 3 from the previous week of 227K, better than the estimation of 220K. Continuing Claims decreased by 23K to 1.891M in the week ended January 27.
- Fed Richmond President Thomas Barkin reiterated policymakers have time to be patient about the timing of rate cuts due to a solid labor market and ongoing disinflation.
Technical Analysis: Indian Rupee ticks up in the 82.70–83.20 long-term trading range
Indian Rupee trades flat on the day. USD/INR remains stuck within a descending trend channel of 82.70–83.20 since December 8, 2023.
In the near term, the pair is below the key 100-period Exponential Moving Average (EMA) in the daily timeframe and the 14-day Relative Strength Index (RSI) lies below the 50.0 midline. This indicates that the pair maintains its bearish bias and the further decline cannot be ruled out.
In case of a bearish trading environment, a low of February 2 at 82.83 will be the first downside target for USD/INR. The potential support level for the pair will emerge at the lower limit of the descending trend channel at 82.70. A breach of this level could draw in enough sellers to send USD/INR back to a low of August 23 at 82.45, followed by a low of June 1 at 82.25.
The key resistance level is seen in the 83.00–83.05 region, portraying the upper boundary of the descending trend channel, the psychological round figure, and the 100-period EMA. Sustained gains above this level could spur a rally to a high of January 18 at 83.20. Further north, the next hurdle is located at a high of January 2 at 83.35, en route to the 84.00 psychological level.
US Dollar price in the last 7 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 weakest against the New Zealand Dollar.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | 0.95% | 1.03% | 0.59% | 1.24% | 1.97% | 0.46% | 1.93% | |
| EUR | -0.96% | 0.08% | -0.35% | 0.29% | 1.03% | -0.50% | 0.99% | |
| GBP | -1.02% | -0.08% | -0.43% | 0.21% | 0.95% | -0.58% | 0.90% | |
| CAD | -0.60% | 0.35% | 0.44% | 0.64% | 1.38% | -0.14% | 1.33% | |
| AUD | -1.26% | -0.29% | -0.20% | -0.64% | 0.75% | -0.79% | 0.72% | |
| JPY | -2.01% | -1.04% | -0.96% | -1.41% | -0.75% | -1.54% | -0.04% | |
| NZD | -0.46% | 0.49% | 0.58% | 0.14% | 0.78% | 1.52% | 1.47% | |
| CHF | -1.95% | -0.98% | -0.89% | -1.33% | -0.68% | 0.07% | -1.48% |
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.
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