The Indian Rupee (INR) experienced a decline during the Thursday Asian trading session, influenced by several factors including a drop in the Chinese Yuan, a stronger US Dollar, and cautious market sentiments following the recent appointment of Sanjay Malhotra as the new governor of the Reserve Bank of India (RBI). Following a record low in the previous session, the INR struggled against these headwinds, particularly as importers and foreign banks increased their demand for US Dollars.
Traders are now adjusting their expectations regarding interest rate cuts, anticipating that Malhotra’s appointment might lead to a dovish shift in monetary policy. This expectation contributes to the downward pressure on the local currency, although the RBI’s potential intervention to stabilize the INR could mitigate further losses. Historically, the RBI has stepped in by selling Dollars to curb significant depreciation of the Rupee.
Market participants are keenly awaiting the release of various economic indicators, including the Indian Consumer Price Index (CPI), Industrial Output, and Manufacturing Output, all scheduled to be published on Thursday. These figures, combined with the US Producer Price Index (PPI) and Initial Jobless Claims data, are expected to provide insight into economic trends and influence currency movements.
Forecasts suggest that India’s GDP growth could rise to 7% by FY26, driven by a recovery in capital expenditure, increased government spending, and potential easing in macro-prudential measures. Analysts predict a 25 basis point reduction in the repo rate during Malhotra’s first meeting of the Monetary Policy Committee, expected in February.
In comparison, the US Consumer Price Index reflected a marginal rise to 2.7% YoY in November, closely aligned with market expectations. The Federal Reserve is seen to have a strong probability of rate reductions in the upcoming meeting, which may also impact the currency landscape. As the USD/INR pair trades, it exhibits a supportive trend above key moving averages, with significant levels of resistance and support dictating potential future movements.
