Indian Rupee Weighed Down Despite Weaker Dollar: RBI MPC Minutes Analysis


February 23, 2023

New Delhi, India

RBI Holds Steady Amid Inflation Concerns

In its latest Monetary Policy Committee (MPC) meeting, the Reserve Bank of India (RBI) opted to maintain the key repo rate at 6.5%. This decision came in the wake of persistent concerns over high inflation levels, with RBI Governor Shaktikanta Das emphasizing the need for caution. Despite a weaker US Dollar, the Indian Rupee has faced downward pressure, reflecting market apprehensions surrounding inflation and global economic trends.

Factors Driving USD/INR Movement

The USD/INR currency pair has experienced fluctuations, influenced by both domestic and international factors. While the US Dollar has weakened, the Indian Rupee’s performance has been subdued. Minutes from the Federal Reserve’s January meeting, coupled with a weaker-than-expected bond auction, have pushed US Treasury yields higher, exerting downward pressure on the INR. Additionally, geopolitical tensions and supply chain disruptions have contributed to uncertainties, further impacting the currency’s movement.

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Technical Analysis Indicates Bearish Outlook

Technical analysis of the USD/INR pair reveals a bearish outlook, with the currency trading within a descending trend channel since December 2023. The pair remains below the key 100-day Exponential Moving Average (EMA), indicating a downward trajectory. The 14-day Relative Strength Index (RSI) stands below the 50.0 midline, signaling further potential for decline. Support levels are identified at 82.70, followed by 82.45 and 82.25, while resistance levels lie at 83.00, 83.20, 83.35, and 84.00.

Market Sentiment and Future Outlook

With the absence of significant economic data releases, market sentiment is likely to play a crucial role in shaping the USD/INR price action. Attention will shift to the US Gross Domestic Product Annualized (GDP) for the fourth quarter for fresh impetus. However, uncertainties surrounding inflation and global economic dynamics may continue to impact the Indian Rupee’s performance in the near term.

In conclusion, the Indian Rupee remains under pressure despite a weaker US Dollar, with the RBI’s cautious stance on inflation and global economic uncertainties contributing to the currency’s subdued performance.

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