February 9, 2023
New Delhi, India
RBI Holds Repo Rate, INR Trades Steady
The Indian Rupee (INR) maintains a flat trajectory against the US Dollar (USD) as the Reserve Bank of India (RBI) keeps the repo rate unchanged at 6.5%. Despite renewed USD demand and higher US bond yields, the INR sees mild positive movements due to local private banks’ Dollar sales, although gains are tempered by a dip in buying demand.
RBI’s Monetary Policy Committee (MPC) Decision
India’s MPC opted to maintain the repo rate at 6.5% for the sixth consecutive time, citing inflation progress with easing CPI. However, ongoing geopolitical tensions, food price volatility, and global interest rate uncertainty pose risks to inflation. Markets anticipate a potential rate cut in June following the formation of a new government.
Market Reaction and Future Outlook
Investors have scaled back expectations for Fed rate cuts in March due to hawkish remarks from officials and robust US economic data. Market sentiment will likely dictate the USD/INR pair’s movement until the release of India’s inflation data and Industrial Production next week. The MPC meeting minutes on February 22 will offer further insights into inflation trajectory.
Key Points from RBI Decision
- The decision wasn’t unanimous, with a 5:1 majority in favor of maintaining rates. Professor Varma voted for a 25 basis points cut.
- RBI revised GDP growth forecast for FY25 to 7% from 6.5%.
- Inflation projections remain steady at 5.4% for 2023–2024 and 4.5% for 2024–25, with CPI inflation projected at 4.5% for fiscal year 2024–2025.
Technical Analysis and Market Trends
USD/INR trades within a descending trend channel of 82.70–83.20, with bearish bias indicated by key technical indicators. Support levels lie at 82.83 and 82.70, while resistance is seen at 83.00–83.05 and 83.20.
In the absence of major economic data, market sentiment and geopolitical developments will likely dictate short-term movements in the USD/INR pair.
At the time of writing this article USD/INR is trading at 82.970.
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