CHENNAI: The Indian rupee edged higher on Monday, trading around ₹85.60 per US dollar, supported by a mix of domestic monetary policy adjustments and a softer US dollar globally. Currency markets are reacting to the Reserve Bank of India's (RBI) recent policy measures aimed at stimulating economic activity without igniting inflationary pressure.
Key Developments Impacting the Rupee
Repo rate cut: In a surprise move, the RBI on Friday slashed the repo rate by 50 basis points, more than market expectations.
Reserve ratio reduced: The cash reserve ratio (CRR) was also lowered, improving liquidity for banks.
Growth outlook steady: GDP growth forecast was maintained at 6.5%, indicating confidence in the economy's underlying strength.
Inflation revised lower: The CPI inflation estimate was revised down to 3.7% from 4.0%, comfortably within the RBI’s 2–6% target band.
Stance turned ‘neutral’: The RBI shifted its stance from 'accommodative' to 'neutral', suggesting a pause in the easing cycle.
Weaker US dollar: The rupee has found support from a broad-based dollar decline, as investors remain cautious ahead of US-China trade talks in London.
Emerging market flows: Volatile foreign institutional investor (FII) flows and geopolitical uncertainties continue to influence short-term rupee movements.
Forex Reserves Strategy
The RBI has been actively bolstering forex reserves to buffer against external shocks. While this supports long-term rupee stability, it may lead to occasional intervention-led volatility.
According to currency market experts, the rupee is expected to remain range-bound in the near term, hovering between ₹85.30–₹85.80/USD, with support from the RBI’s proactive measures and global risk sentiment. However, any surprises from global central banks or renewed FII outflows could test the rupee's resilience.
However, they warn about key risks to watch in the markets are crude oil price fluctuations, global risk-off sentiment, and volatility in capital inflows.