The RBI held at 5.25% and India attracted $41 billion: Why the Rupee still faces a ceiling
The Indian Rupee (INR) has found local support against the US Dollar (USD), with USD/INR easing to around 95.10 following the Reserve Bank of India’s (RBI) decision to hold its benchmark repo rate steady at 5.25% for a fourth consecutive meeting.
India's currency, the Indian Rupee (INR), has strengthened against the US Dollar (USD) following the Reserve Bank of India's (RBI) decision to keep its benchmark repo rate at 5.25%. The USD/INR exchange rate has eased to around 95.10, with foreign capital inflows contributing to the currency's gains. The RBI maintained its neutral policy stance, attributing recent inflation increases to supply factors and raising its growth projections while lowering inflation expectations for the medium term.
Analysts from Commerzbank and OCBC highlight that the RBI's cautious approach differentiates it from Asian peers who have raised rates to combat energy and currency pressures. Although June CPI exceeded the RBI's 4% target to 4.4% YoY, policymakers view the rise as temporary and food and energy-specific, with little evidence of broader pass-through.
In addition, the probability of an October rate hike has decreased to around 58%. Foreign capital inflows amounting to nearly USD41 billion have bolstered foreign exchange reserves and banking system liquidity, positioning the INR to handle near-term shifts. External factors, such as US monetary policy expectations and US-Iran geopolitical risks, remain significant obstacles to sustained currency gains.
Financial institutions project a stabilized near-term environment for USD/INR, with technical support around the 95.00 level.
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