Indian Rupee: Policy holds with FX intervention – BNY

BNY’s Geoff Yu expects the Reserve Bank of India to keep the repo rate at 5.25%, relying on macroprudential tools to manage financial stability while INR remains pressured by higher Oil and a stronger Dollar. The report also notes that central banks in India and the Philippines are actively leaning against currency volatility, capping USD/INR and USD/PHP upside despite softer domestic fundamentals and elevated energy prices.

INR policy stance and FX stability

"We expect the RBI to leave the repo rate unchanged at 5.25%. The uncomfortable mix of sticky inflation and slowing growth reinforces a cautious, data-dependent stance."

"RBI’s focus is likely to remain on inflation expectations, supply-side risks, and macroprudential measures to preserve financial and currency market stability rather than via interest rates policy."

"Nevertheless, INR is likely to stay under pressure as elevated oil prices and a stronger US dollar continue to weigh on the currency."

"The central banks of India and the Philippines continue to lean against currency volatility. Active intervention has capped upside in USD/INR and USD/PHP despite softer domestic fundamentals and higher oil prices, highlighting policymakers’ commitment to maintaining orderly FX markets."

"We continue to see value in carry interest, but duration will likely perform better compared to outright currency exposures."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)