USD/INR remains broadly muted after RBI’s 25 bps hike in Repo Rates to 5.5%

• The Indian Rupee has not shown a significant reaction against the US Dollar, following the RBI’s monetary policy decision.
• The RBI has raised its key Repo Rate by 25 bps to 5.5%.
• India’s central bank shifts policy stance to 'calibrated tightening' from 'neutral'.

The Indian Rupee ((INR) remains broadly muted at around 96.37 against the US Dollar (USD) after the Reserve Bank of India’s (RBI) monetary policy decision. In the policy meeting, the RBI decide to hike its Repo Rate by 25 basis points (bps) to 5.5%, the first hike since February 2023.

In the policy statement, RBI Governor Sanjay Malhotra said that the Monetray Policy Committee (MPC) decided to change policy stance to 'calibrated tightening' from 'neutral'. Regarding the global economic outlook, Malhotra said that “higher US Dollar, Middle East tensions, and trade uncertainty to keep global sentiment under pressure”.

The RBI was already anticipated to hike interest rates even as inflationary pressures have remained well inside the central bank’s tolerance band of 2%-6%.

Strategists at Brown Brothers Harriman (BBH) said before the policy announcement that the “RBI to hike to defend INR and respond to stronger growth, with Q2 real GDP of 7.8% y/y beating the bank’s 6.4% forecast.”

Meanwhile, the US Dollar regains ground after a corrective move the previous day. In the Asian trade, the US Dollar Index (DXY), which gauges the Greenback’s value against six major currencies, trades 0.18% higher at around 102.00.

Going forward, investors will focus on the Federal Open Market Committee (FOMC) minutes of the September policy meeting, which will be published at 18:00 GMT. In the policy meeting, the Fed hiked interest rates by 25 basis points (bps) and signaled at least one more this year.