USD/INR gains traction as RBI cuts Repo Rate by 25 bps to 6.00%
- The Indian Rupee loses momentum in Wednesday’s early European session.
- RBI’s MPC cut the Repo Rate by 25 bps to 6.0% in the April meeting on Wednesday.
- An escalating global trade war and potential US recession undermine the INR.
- The FOMC Minutes will take center stage later on Wednesday.
The Indian Rupee (INR) extends the decline on Wednesday after reaching the largest single-day loss in nearly three months in the previous session. The Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC) unanimously voted to cut the policy Repo Rate by 25 basis points (bps) to 6.00% at its April meeting on Wednesday. The Indian central bank delivered a rate cut for a second consecutive time and changed its monetary policy stance to "accommodative" from "neutral" to boost the sluggish economy, which is facing further pressure from US tariffs.
The local currency remains under pressure amid a looming global trade war stoking fears of economic meltdown. Furthermore, continued foreign capital outflows and US Dollar (USD) buying from importers, foreign investors and oil companies weigh on the Indian currency.
Nonetheless, a fall in crude oil prices might help limit the INR’s losses. It’s worth noting that India is the world's third-largest oil consumer, and lower crude oil prices tend to have a positive impact on the Indian currency value. Traders will closely monitor the FOMC Minutes later on Wednesday. Also, the Federal Reserve's (Fed) Thomas Barkin is scheduled to speak.
Indian Rupee remains fragile amid Trump tariff turmoil
- RBI Governor Sanjay Malhotra said that the Indian economy has made steady progress towards the goal of price stability and sustained growth.
- The RBI MPC reduced the SDF rate to 5.75% and the MSF rate to 6.25%.
- Inflation for FY26 has been projected at 4% as against the 4.2% forecasted in February, while Real GDP is now projected for FY26 at 6.5%. RBI’s Malhotra said that growth projections have been revised downwards by 20 bps due to policy and trade uncertainties.
- RBI Governor Sanjay Malhotra said that the Indian economy has made steady progress towards the goal of price stability and sustained growth.
- “The rupee experienced a decline in value against the US dollar, primarily driven by strong demand for dollars from importers and ongoing outflows of foreign funds from Indian equity markets,” forex traders said.
- US Customs and Border Protection said on Tuesday that it is prepared to begin collecting country-specific tariffs from 86 US trade partners.
- Trump noted that he wasn’t considering a pause on his plan to implement sweeping additional tariffs on dozens of countries despite contact from trade partners seeking to avoid the levies, but hinted he would be open to some negotiations.
- San Francisco Fed President Mary Daly said on Tuesday that there's no rush to cut interest rates as the economy and the labor market are still solid and a lot is still unclear about the size and scope of Trump's tariffs.
- Chicago Fed President Austan Goolsbee noted that Trump's tariffs are "way bigger" than had been modeled, and it's unclear how quickly or fully those higher costs will be passed on to consumers.
USD/INR resumes recovery above the 100-day EMA
The Indian Rupee trades on a weaker note on the day. The USD/INR pair resumes its uptrend on the daily chart, with the price crossing above the key 100-day Exponential Moving Average (EMA). However, further consolidation cannot be ruled out in the near term as the 14-day Relative Strength Index (RSI) hovers around the midline.
The immediate resistance level for USD/INR is located at the pullback of 86.48. Sustained upside momentum could take the pair to the next bullish target at the 87.00 psychological level. The next hurdle is seen at 87.53, the high of February 28.
On the downside, the first downside target to watch is 85.42, the low of March 31. Further south, the next contention level emerges at 85.20, the low of April 3, followed by 85.00, the round mark.
Interest rates FAQs
Interest rates are charged by financial institutions on loans to borrowers and are paid as interest to savers and depositors. They are influenced by base lending rates, which are set by central banks in response to changes in the economy. Central banks normally have a mandate to ensure price stability, which in most cases means targeting a core inflation rate of around 2%. If inflation falls below target the central bank may cut base lending rates, with a view to stimulating lending and boosting the economy. If inflation rises substantially above 2% it normally results in the central bank raising base lending rates in an attempt to lower inflation.
Higher interest rates generally help strengthen a country’s currency as they make it a more attractive place for global investors to park their money.
Higher interest rates overall weigh on the price of Gold because they increase the opportunity cost of holding Gold instead of investing in an interest-bearing asset or placing cash in the bank. If interest rates are high that usually pushes up the price of the US Dollar (USD), and since Gold is priced in Dollars, this has the effect of lowering the price of Gold.
The Fed funds rate is the overnight rate at which US banks lend to each other. It is the oft-quoted headline rate set by the Federal Reserve at its FOMC meetings. It is set as a range, for example 4.75%-5.00%, though the upper limit (in that case 5.00%) is the quoted figure. Market expectations for future Fed funds rate are tracked by the CME FedWatch tool, which shapes how many financial markets behave in anticipation of future Federal Reserve monetary policy decisions.
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Author
Lallalit Srijandorn
FXStreet
Lallalit Srijandorn is a Parisian at heart. She has lived in France since 2019 and now becomes a digital entrepreneur based in Paris and Bangkok.
