- The Indian Rupee trades flat in Wednesday’s early European session.
- RBI’s MPC decided to keep the repo rate unchanged at 6.5% in its October meeting on Wednesday.
- Lower crude oil prices and potential RBI’s foreign exchange intervention might underpin the INR.
- Investors await the FOMC Minutes, which is due on Wednesday.
The Indian Rupee (INR) trades on a flat note on Wednesday. The Reserve Bank of India (RBI) Governor Shaktikanta Das announced its fourth bi-monthly monetary policy statement on Thursday. The Indian central bank maintained the status quo on the repo rate at 6.50% for the tenth consecutive meeting. However, the RBI Monetary Policy Committee (MPC) changed the policy stance to neutral from withdrawal of accommodation. The INR flat lines in immediate reaction to the rate decision.
A decline in crude oil prices, stronger Asian currencies and likely foreign exchange intervention from the RBI might provide some support to the INR. On the other hand, outflows from local equities and renewed US Dollar (USD) demand might cap the upside for the local currency. Later on Wednesday, the Federal Reserve’s (Fed) September meeting minutes will be in the spotlight.
Daily Digest Market Movers: Indian Rupee remains steady after RBI rate decision
- RBI kept CPI Inflation estimate for FY25 unchanged at 4.5%, while maintaining the Gross Domestic Product (GDP) growth estimates for FY25 at 7.2%.
- “A rise in oil prices coinciding with dollar strength has increased inflation risks in India and put pressure on the rupee, such that the RBI has had to undertake significant FX intervention in recent days,” noted J.P. Morgan analysts on Tuesday.
- India’s foreign exchange reserves rose to a record-breaking $704.89 billion as of September 27, marking an increase of $12.5 billion, according to the RBI.
- Federal Reserve Vice Chair Philip Jefferson said on Tuesday that risks to the central bank’s employment and inflation goals are now closer to equal, per Bloomberg.
- Boston Fed President Susan Collins noted on Tuesday that with inflation trends growing weaker, it is very probable that the Fed can deliver more interest rate cuts.
- The markets have priced in nearly an 87% chance of 25 basis points (bps) Fed rate cuts in November, up from 31.1% last week, according to the CME FedWatch Tool.
Technical Analysis: USD/INR’s positive outlook prevails
The Indian Rupee trades flat on the day. The USD/INR pair keeps the bullish vibe above the descending trend line and the key 100-day Exponential Moving Average (EMA) on the daily timeframe. The path of least resistance level appears to the upside as the 14-day Relative Strength Index (RSI) is located above the midline near 55.70.
The key resistance level for USD/INR emerges near the upper boundary of the rectangle and a psychological mark of 84.00. Further north, the next upside barrier is seen at the all-time high of 84.15, followed by 84.50.
On the flip side, the resistance-turned-support level at 83.90 acts as an initial support level for USD/INR. Extended losses could expose the 100-day EMA at 83.67. Any follow-through selling could see a drop to 83.00, representing the round mark and the low of May 24.
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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