USD/INR Price News: Indian Rupee retreats from monthly high as RBI unveils 35 bps rate hike

• USD/INR eases from one-month high on the Reserve Bank of India (RBI) rate hike.
• RBI announces 0.35% increase to benchmark Repo rate, as expected.
• Sluggish US Dollar, cautious optimism surrounding China and sticky Oil price also favor Indian Rupee.

USD/INR fades upside momentum, after an initial pullback from the monthly high, as the Reserve Bank of India’s (RBI) interest rate increased on Wednesday. That said, the Indian Rupee (INR) pair remains firmer around a one-month high near 82.70 by the press time.

RBI matches market forecasts of announcing 35 basis points (bps) of increase into the benchmark Repo Rate to 6.25%. The Indian central bank also increased the standing deposit facility rate and marginal standing facility rate by 35 bps. It’s worth noting, however, that RBI Governor Shaktikanta Das signaled that Inflation remains elevated and the economy is resilient.

Ahead of the RBI’s verdict, a Reuters poll mentioned that the battered Indian Rupee will not recoup most of its recent losses over the coming year thanks to a persistent current account deficit and a central bank nearing the end of its rate-hiking cycle. The survey also mentioned, “A widening trade deficit driven by rising oil prices along with expectations for a prolonged U.S. Federal Reserve policy tightening cycle is partly responsible for an 11% year-to-date fall in the Rupee to a record low of 83.29 per the US Dollar in October.”

On Tuesday, the World Bank mentioned that India is well placed to navigate global headwinds while also stating, “An unexpected hike by the US Fed could lead to rupee depreciation, rise in retail inflation in India.”

Elsewhere, fears of economic recession contrast with China’s Covid-linked headlines and downbeat trade numbers to challenge the USD/INR traders. Also likely acting as trade filters could be the inaction of Oil prices and mixed performance of the global markets amid the pre-Fed blackout period for the US central bank officials.

Against this backdrop, US stock futures print mild gains but stocks in the Asia-Pacific zone trade mixed. Further, the US 10-year Treasury yields pick up bids to 3.55% by reversing the previous day’s losses.

Having witnessed the initial reaction to the RBI’s moves, USD/INR traders should rely on the risk catalysts amid a light calendar ahead of Thursday’s China inflation numbers and Friday’s preliminary readings of the US Michigan Consumer Sentiment Index.

Technical analysis

A daily closing beyond the seven-week-old resistance line, around 82.75 by the press time, appears necessary for the USD/INR bulls to keep the reins. Otherwise, nearly overbought RSI (14) suggests a pullback towards the 81.90 support confluence including the 50-DMA and multiple levels marked since late October.