Indian Rupee: Lower oil and inflows support INR against US Dollar – OCBC

OCBC’s Christopher Wong and Sim Moh Siong highlight that the Reserve Bank of India's (RBI) decision to hold the repo rate at 5.25% while lowering inflation forecasts and nudging growth higher, alongside strong capital inflows, has put India’s balance of payments on track for a healthy surplus. Lower Oil and rising reserves provide a buffer for Indian Rupee (INR), though elevated US yields and volatile Oil may cap further USD/INR downside.

RBI stance and technical levels

"The RBI kept the repo rate unchanged at 5.25% and retained its neutral stance, while lowering its inflation forecasts and nudging its growth projection higher."

"The RBI also shared that its recent measures had attracted nearly USD41bn of capital inflows (USD36.7bn from FCNR deposits, USD2.57bn through overseas foreign currency borrowings and USD1.5bn raised through swap facilities from External Commercial Borrowings). This puts India’s balance of payments on track for a healthy surplus and can support banking system liquidity."

"Governor Sanjay also reiterated that the exchange rate should remain market-determined, while the RBI would curb excessive volatility and prevent moves that become detached from fundamentals."

"Together with lower oil and the sharp rise in reserves, this gives the INR a firmer near-term buffer, although choppy oil prices amid fluid US-Iran geopolitical developments and still-elevated US Treasury yields on worries of Fed tightening may still restrain gains in INR."

"USD/INR last closed at 95.13. Bearish momentum on daily chart intact though RSI is near oversold conditions. Support at 95 levels, 94.70/74 levels (100 DMA, 76.4% fibo retracement of Jun low to Jul high). Resistance at 95.40 (50DMA, 50% fibo), 95.70 (38.2% fibo)."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)