Indian Rupee: RBI focus on FX stability – Commerzbank

Commerzbank analysts report that India will introduce new Producer Price Index (PPI) and revised WPI indices on 15 June, improving measurement of producer price pressures but with limited near-term policy impact. They expect the RBI to keep its policy rate at 5.25%, with emphasis on FX stability as USD/INR has weakened 6.1% year-to-date and recent RBI intervention has been reported.

New price indices and RBI stance

"India announced a revision of the Wholesale Price Index (WPI) alongside the introduction of a Producer Price Index (PPI). Both datasets will be released on 15 June. The change reflects a gradual transition away from a commodity-heavy inflation index toward one that captures the prices of both goods and services faced by producers."

"The new PPI covers both goods and services. It will be disaggregated into monthly output PPI, input PPI, and quarterly services PPI. This should improve the measurement of upstream cost pressures and provide a more consistent deflator for real GDP calculations."

"On monetary policy, the Reserve Bank of India (RBI) began its three-day meeting yesterday. The central bank is expected to leave the policy rate unchanged at 5.25% as inflation remains below target despite growing upside risks."

"However, policy emphasis will likely be on FX stability, with a bias toward a more hawkish bias and continued reliance on macro-prudential measures to support inflows. The government is reportedly considering bond tax incentives to attract foreign participation."

"In FX, USD/INR rose 0.5% to 95.71 yesterday as oil prices gained on geopolitical uncertainty and concerns over US tariff policy. Reports indicated that RBI intervened earlier this week to support the INR. It is the second-weakest Asian currency. Year-to-date, the INR is down 6.1% vs the USD compared to the average for Asian currencies ex-Japan of -2.4%."

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