Key Moments
- RBI raised the key Repo Rate by 25 bps to 5.5% and moved its stance to “calibrated tightening” from “neutral”.
- USD/INR climbed to around 96.72, marking its highest level in four months amid a stronger US Dollar.
- Indian FY 27 CPI inflation projection was increased to 5.2% YoY from 5%, while NBFC credit growth remained robust.
Rupee Weakens After RBI Decision
The Indian Rupee (INR) lost ground against the US Dollar (USD) following the Reserve Bank of India’s (RBI) latest monetary policy decision. After an initially subdued market reaction, the USD/INR pair moved sharply higher, reaching about 96.72 – a level not seen in four months.
The currency move came on the heels of the RBI’s policy announcement, which signaled a shift toward a tighter policy environment and prompted investors to reprice expectations for the Rupee and domestic rates.
Details of the RBI Policy Outcome
At its policy meeting, the RBI raised its benchmark Repo Rate by 25 basis points to 5.5%. This marked the first rate increase since February 2023.
RBI Governor Sanjay Malhotra stated in the monetary policy announcement that the Monetary Policy Committee (MPC) had decided to adjust its policy stance to “calibrated tightening” from “neutral”, indicating that the period of easy liquidity has come to an end.
On inflation, the central bank revised its outlook for FY 27 retail Consumer Price Index (CPI) inflation, lifting the projection to 5.2% Year-on-Year (YoY) from the previous forecast of 5%. This revision underscored the RBI’s assessment of price pressures within the economy.
Global and Domestic Backdrop
Commenting on the external environment, Malhotra said that “higher US Dollar, Middle East tensions, and trade uncertainty to keep global sentiment under pressure.” These factors were flagged as key risks for global market conditions.
On domestic dynamics, Malhotra noted, “NBFC growth rate has been quite robust, about 27% credit growth by banks to NBFCs and NBFC credit growth itself is also quite robust.” This highlighted the strength of credit expansion in the non-bank financial segment.
The RBI’s decision to tighten policy had been widely anticipated, even as inflation remained firmly within the central bank’s 2%-6% tolerance band.
Strategists at Brown Brothers Harriman (BBH) had commented before the policy announcement that the “RBI to hike to defend INR and respond to stronger growth, with Q2 real GDP of 7.8% y/y beating the bank’s 6.4% forecast.”
US Dollar Strength Adds to INR Pressure
An improving US Dollar backdrop further supported the USD/INR advance. The US Dollar recovered after a prior day’s corrective pullback. As of the time of writing, the US Dollar Index (DXY), which tracks the Greenback against six major peers, was trading 0.18% higher near 102.00.
Market participants were also looking ahead to the release of the Federal Open Market Committee (FOMC) minutes from the September policy meeting, scheduled for 18:00 GMT. In that meeting, the Federal Reserve raised interest rates by 25 basis points and signaled the likelihood of at least one additional hike this year.
The forthcoming minutes were expected to have a limited effect on expectations for the Fed’s October meeting, as officials had already communicated that there was no immediate urgency for another rate move. However, they had not dismissed the prospect of one more hike before the year concludes.
According to the CME FedWatch tool, there is an almost 86% probability that the Fed will implement at least one more rate increase by year-end.
USD/INR Technical Picture
On the daily chart, USD/INR was trading at 96.72, maintaining a constructive short-term outlook. The pair stayed above the 20-day exponential moving average (EMA) at 95.99, keeping the near-term uptrend intact.
The 14-day Relative Strength Index (RSI) stood at 72.95, placing the momentum indicator in overbought territory. This suggested that, despite strong upside momentum, the move might be vulnerable to consolidation or a modest pullback.
On the downside, immediate support was identified around the 96.30 zone as a near-term pivot level. Below that, the 20-day EMA at 95.99 provided another key area of support that continued to underpin the broader positive structure while it holds.
On the upside, the pair was approaching its all-time high close to 97.00, a level that could act as a significant resistance threshold if tested.
| Indicator | Level / Detail |
|---|---|
| Repo Rate (post-hike) | 5.5% |
| Rate hike magnitude | 25 bps |
| Policy stance | “Calibrated tightening” (from “neutral”) |
| FY 27 CPI forecast | 5.2% YoY (previously 5%) |
| USD/INR spot level | 96.72 |
| 20-day EMA (USD/INR) | 95.99 |
| RSI (14) | 72.95 |
| Key support | 96.30 and 95.99 (20-day EMA) |
| Key resistance | Near 97.00 (all-time high area) |
| DXY level | ~102.00 (+0.18%) |
| Fed September move | 25 bps rate hike |
| CME FedWatch year-end hike probability | Almost 86% |
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