Indian Rupee gives back mild gains after RBI leaves Repo Rate steady at 5.25%
- The Indian Rupee gives back some of its early gains against the US Dollar after the RBI's policy decision.
- The RBI leaves the Repo Rate steady at 5.25% for the fourth time in a row.
- Oil prices fall sharply on US-Iran deal hopes.
The Indian Rupee (INR) surrenders mild gains after a strong opening against the US Dollar (USD), following the Reserve Bank of India’s (RBI) monetary policy decision. The USD/INR opened sharply lower at around 94.80 due to lower oil prices, but it has clawed back some of its early losses and has rebounded to near 95.06.
The RBI has left its Repo Rate steady at 5.25%, as expected, for the fourth time in a row, and has maintained a "neutral" stance on the monetary policy.
The Indian central bank was expected to maintain the status quo as the retail Consumer Price Index (CPI) has remained well within the RBI’s tolerance band of 2%-6%, despite arriving higher at 4.4% Year-on-Year (YoY) in June.
RBI Governor Sanjay Malhotra has warned that the West Asia conflict continues to challenge the global economy, with crude oil prices, currencies, and financial markets remaining volatile. Regarding inflation, Malhotra has said that higher fuel and food prices have started showing little signs of generalization of price pressures so far. However, he has assured that economic activity remained robust, stating, "Indian economy performed better than expected in Q1 FY27."
Crude oil falls further on US-Iran deal hopes
Oil prices extend their decline on Wednesday amid hopes that the US and Iran will reach a deal soon. On Tuesday, US Treasury Secretary Scott Bessent said in an interview with CNBC that Washington could reach a deal with Iran on reopening the Strait of Hormuz, a vital passage for almost 20% of global energy supply, within the next two days.
In the opening session, the MCX Crude Oil contract expiring on August 19 trades 1.6% lower to near Rs. 7,100.
Meanwhile, Qatar also confirmed on Tuesday that mediators including Qatar, Pakistan and Oman are coordinating closely to facilitate negotiations and exchange drafts between both sides.
However, financial markets remain uncertain regarding whether the US-Iran deal on Hormuz will restore freedom of movement through the passage.
US ADP Employment data awaited
In the US, investors await key US ADP Employment Change data for July, which will be published at 12:15 GMT.
Economists at Deutsche Bank anticipate a slightly firmer US labor market print on Wednesday, projecting private payrolls to rise by +65k after +49k previously. The private sector employment data is expected to influence the Federal Reserve's (Fed) interest rate expectations.
Technical Analysis: USD/INR stays below 20-day EMA
USD/INR trades lower at around 95.06 at press time. The pair remains under pressure in the near term, holding below the 20-period exponential moving average (EMA) at 95.6394, which suggests that recent rebounds are still being sold into.
The Relative Strength Index (RSI) at 40.6 stays in bearish territory but above oversold, hinting at persistent downside bias while leaving room for further weakness before stretched conditions emerge.
On the topside, initial resistance is located at the 20-day EMA near 95.64, which needs to be reclaimed to ease the immediate bearish tone and open the way for a more meaningful recovery toward 96.00. Looking down, the pair could decline toward the June low at 94.15 if it fails to hold the intraday low at around 94.80.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
Indian Rupee FAQs
The Indian Rupee (INR) is one of the most sensitive currencies to external factors. The price of Crude Oil (the country is highly dependent on imported Oil), the value of the US Dollar – most trade is conducted in USD – and the level of foreign investment, are all influential. Direct intervention by the Reserve Bank of India (RBI) in FX markets to keep the exchange rate stable, as well as the level of interest rates set by the RBI, are further major influencing factors on the Rupee.
The Reserve Bank of India (RBI) actively intervenes in forex markets to maintain a stable exchange rate, to help facilitate trade. In addition, the RBI tries to maintain the inflation rate at its 4% target by adjusting interest rates. Higher interest rates usually strengthen the Rupee. This is due to the role of the ‘carry trade’ in which investors borrow in countries with lower interest rates so as to place their money in countries’ offering relatively higher interest rates and profit from the difference.
Macroeconomic factors that influence the value of the Rupee include inflation, interest rates, the economic growth rate (GDP), the balance of trade, and inflows from foreign investment. A higher growth rate can lead to more overseas investment, pushing up demand for the Rupee. A less negative balance of trade will eventually lead to a stronger Rupee. Higher interest rates, especially real rates (interest rates less inflation) are also positive for the Rupee. A risk-on environment can lead to greater inflows of Foreign Direct and Indirect Investment (FDI and FII), which also benefit the Rupee.
Higher inflation, particularly, if it is comparatively higher than India’s peers, is generally negative for the currency as it reflects devaluation through oversupply. Inflation also increases the cost of exports, leading to more Rupees being sold to purchase foreign imports, which is Rupee-negative. At the same time, higher inflation usually leads to the Reserve Bank of India (RBI) raising interest rates and this can be positive for the Rupee, due to increased demand from international investors. The opposite effect is true of lower inflation.
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