The Indian Rupee is nearing a historic low as it continues to weaken during Wednesday’s trading session in Asia. The recent appointment of Sanjay Malhotra as the new governor of the Reserve Bank of India has led investors to speculate about potential interest rate cuts. This speculation is compounded by a general decline in other Asian currencies and a persistent strength in the US Dollar, driven by demand from importers and foreign banks. However, any drastic decrease in the Rupee’s value may be moderated by interventions from the Reserve Bank of India, which typically manages liquidity by selling US Dollars to mitigate sharp devaluations.
Attention is also focused on the upcoming US Consumer Price Index (CPI) data for November, which is expected to influence global market sentiment. Meanwhile, India’s own CPI inflation figures are set to be released on Thursday, alongside data on industrial and manufacturing output. The shift in the leadership at the RBI, particularly with the departure of the hawkish Governor Das, may set a more dovish tone for future monetary policy, raising expectations for rate cuts sooner than previously thought.
Market analysts predict that under Malhotra’s leadership, the monetary policy committee could consider a 25 basis points cut to the repo rate at its first meeting in February. Notably, bond yields have seen a decline, signaling a shift in market expectations regarding interest rates. Current predictions suggest an 85.8% likelihood of a rate decrease by the Federal Reserve at its upcoming meeting in mid-December, adding further context to the evolving economic landscape.
In the forex market, the USD/INR pair maintains a bearish trend, with current trading exceeding the critical 100-day Exponential Moving Average. The Relative Strength Index indicates overbought conditions, suggesting that while short-term appreciation may be limited, potential consolidation should be expected. Key thresholds for the USD/INR include the psychological level of 85.00, which if surpassed, could lead to further rallies towards 85.50, while initial support remains at 84.65. A breach of this level could push the pair lower, targeting 84.22 and then 84.08 as potential downside levels.
