Indian Rupee: RBI tightening fails to halt INR slide – BBH

Brown Brothers Harriman's Elias Haddad reports that the Reserve Bank of India's (RBI) 25 basis point rate hike to 5.50% did not aid the Indian Rupee (INR). The RBI's decision to adopt a "calibrated tightening" stance, coupled with a 4-2 split among its members, suggests limited support for aggressive rate hikes. While positive real rates and RBI's foreign exchange (FX) intervention may help curb USD/INR overshoots, the broad consensus appears to be against further aggressive tightening.

As expected, the RBI chose to raise the policy rate by 25 basis points to 5.50%, after maintaining rates steady at 5.25% for the past four meetings. This decision was unanimous, but the "calibrated tightening" approach left room for additional hikes or pauses, indicating a lack of consensus among the policymakers. Consequently, the Indian Rupee experienced a significant weakening against the US Dollar, with the USD/INR pair reaching a four-month high of around 96.72 following the Reserve Bank of India's monetary policy meeting.