HomeNewsUSD/INR Lower as RBI Hikes More Than Expected
USD/INR Lower as RBI Hikes More Than Expected

USD/INR Lower as RBI Hikes More Than Expected

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USD/INR is lower on Friday after the Reserve Bank of India (RBI) surprised the market with a 50 basis point interest rate hike.

The RBI lifted the benchmark rate by more than the market expected, promising more tightening measures lie ahead. RBI governor Shaktikanta Das told reporters that high inflation was behind the decision to lift the benchmark rate to 5.4%.

Das promised the RBI will do “whatever it takes” to keep the economy on track.

The Indian economy has buckled under the weight of high commodity prices this year. The RBI has tightened policy aggressively since May, after Russia’s invasion of Ukraine sent the oil price spiking higher. The combination of high oil prices and the strong dollar has hampered the nation’s economic growth.

Oil priced in US dollars accounts for around 90% of India’s imports. With that in mind, the price of oil will continue to play a major part in the country’s economic growth path.

The crude oil price has dropped almost 40% in the last few months. Which should help ease inflation moving forwards. As a result, the RBI now expects inflation to drop to 5% early next year from the current levels of more than 7%. Das said the earlier weakness in the rupee resulted from higher energy cost inputs, reminding reporters the country has ample US dollar reserves.

US Dollar to Indian Rupee Analysis

The daily price chart highlights the volatility in yesterday’s trading session. USD/INR reached an intraday high 79.81 on Thursday (+0.82%) before ending the day back at unchanged. This morning, the rupee is slightly stronger by around 0.16% at 78.75.

Considering the move from the RBI, USD/INR could see moderate strength in the coming sessions. However, the 50-Day Moving Average (DMA) at 78.75 (green line) provides technical support below the market. Should the price close below the 50-DMA, it’s likely to extend lower into the 78.00 area.

Later today, the US Non-Farm Payrolls (NFP) will shed more light on USD/INR’s prospects. The data is expected to show the US economy added 250k jobs in July. A higher than expected print will likely provide a bid in the dollar. In this event, the Federal reserve Open Market Committee (FOMC) will have more room to raise rates. However, should the data disappoint we can expect the rupee to add to it’s recent gains against the greenback.

USD/INR Price Chart

Elliot Laybourne
Elliott is a former investment banker with a 20 year career in the city of London. During this time he held senior roles at ABN Amro, Societe Generale, Marex Financial and Natixis bank, specialising in commodity derivatives and options market-making. During this time, Elliott’s client list included Goldman Sachs, JP Morgan, Credit Suisse, Schroders Asset Management, and the Pennsylvania State Public School Employees Retirement System, amongst others. Today, he splits his time between Thailand and Dubai, from where he provides trading consultancy and business development services for family office and brokerage clientele.