The Indian Rupee (INR) has lost traction in recent days, largely due to the strengthening of the US Dollar (USD). Investors are closely monitoring the Reserve Bank of India (RBI) as it is expected to keep interest rates unchanged. Additionally, the US ISM Services PMI report for January is anticipated to provide further insight into the strength of the US economy.
The recent rebound of the INR can be attributed to the release of upbeat US job data. This positive economic indicator has led to a rise in Treasury yields and a stronger USD. The strength in the US job market data has dampened hopes for early rate cuts by the US Federal Reserve (Fed), which has boosted the Greenback across the board.
Economists anticipate that the RBI will maintain its benchmark interest rate at 6.50% during its upcoming policy review. This decision is expected to be consistent with previous policy reviews and could be extended until at least the third quarter. In contrast, there are expectations that the US Federal Reserve may cut its key interest rate in the next quarter. Market players will be closely watching the RBI’s interest rate decision as it could have significant implications for the INR’s future performance.
India’s S&P Global Manufacturing PMI rose to 56.5 in January from 54.9 in November, indicating growth in the sector. Additionally, India’s services growth reached a six-month high due to strong demand. These positive indicators suggest that the Indian economy is currently on a favorable trajectory.
The Indian government plans to spend a record 11.11 trillion Rupees on infrastructure development. This significant investment is expected to boost various sectors of the Indian economy and drive growth. However, the budget deficit for the current fiscal year is projected to be 5.8% of GDP. To address this, the Indian government aims to lower the budget deficit to less than 4.5% by fiscal year 2026.
The USD/INR pair has been consolidating within a descending trend channel of 82.78-83.45. From a technical standpoint, the bearish tone of the pair remains unchanged as it is currently below the key 100-period Exponential Moving Average (EMA) on the daily chart. The 14-day Relative Strength Index (RSI) is also below the 50.0 midline, indicating bearish momentum. However, a potential rally could occur if the USD/INR pair surpasses the psychological handle of 83.00. In such a scenario, further upside resistance levels can be found at the upper boundary of the descending trend channel and the January 18 high of 83.18.
The RBI plays a crucial role in maintaining price stability while supporting economic growth. It aims to keep inflation at a stable 4% level through the use of interest rates. The RBI also actively intervenes in FX markets to manage the exchange rate within a limited range, minimizing currency risk for importers and exporters. Moreover, the RBI conducts frequent meetings to discuss monetary policy and make adjustments when necessary.
The Indian Rupee has weakened due to the stronger US Dollar. The upcoming interest rate decision by the RBI and the release of the US ISM Services PMI report will provide further insights into the future performance of the INR. Positive growth in India’s manufacturing and services sectors, combined with significant infrastructure development plans, indicate favorable economic prospects. However, efforts to reduce the budget deficit remain a priority for the Indian government. Technical analysis suggests that the bearish tone of the USD/INR pair could persist unless key resistance levels are breached. The role of the RBI in maintaining price stability and managing the exchange rate is crucial for the overall stability of the Indian economy.
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