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Home » Forex Technical Analysis » INR Struggles Amid Tariff Threats and Speculation of Rate Cuts

INR Struggles Amid Tariff Threats and Speculation of Rate Cuts

  • December 13, 2024
  • 86

The Indian Rupee (INR) continues to struggle amid pervasive risk aversion spurred by tariff threats from leading figures in the United States. The currency opened lower on Friday, reflecting a broader trend seen in Asian markets, as the offshore Chinese yuan weakened. The shift stems from comments made by a high-ranking trade adviser, warning against currency manipulation by China. These developments have placed additional pressure on the INR, leading it to hover near record lows after two consecutive sessions of losses.

The recent appointment of Sanjay Malhotra as the next Governor of the Reserve Bank of India (RBI) has heightened speculation among traders about potential interest rate cuts. The speculation follows a decrease in India’s retail inflation rate to 5.48% in November, down from October’s peak of 6.21%, largely due to declining food prices. These factors have contributed to a mounting expectation that the RBI may act to lower interest rates during the upcoming policy review.

Despite these pressures, the RBI’s foreign exchange interventions may provide some support for the INR. The central bank has historically engaged in liquidity management, including selling US dollars, to curb the significant depreciation of the Indian currency. However, outflows from foreign institutional investors remain a concern, influencing the overall sentiment in the financial markets. The benchmark indices in India, namely the BSE Sensex and Nifty 50, opened lower, mirroring declines in US markets.

On December 12, foreign institutional investors recorded significant net sales in Indian equities, whereas domestic investors made net purchases, indicating a mixed sentiment in the market. Market expectations are closely tied to the upcoming Federal Reserve meeting, where a rate cut is anticipated.

In its economic forecasts, S&P Global Ratings projects a growth rate of 6.8% for the Indian economy in FY25, bolstered by strong urban consumption, consistent growth in the services sector, and ongoing infrastructure investments. The technical outlook for the USD/INR pair points to potential further gains, with recent trading suggesting the possibility of surpassing previous highs if bullish momentum continues.

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