USD/INR: Temporary setback for the Rupee after RBI pauses in a surprise decision – Standard Chartered

USD/INR  has scaled firmly above 82.00 after the Reserve Bank of India (RBI) kept its repo rate unchanged at 6.5%. However, economists at Standard Chartered continue to see downside risks to USD/INR in the near term.

 The repo rate has peaked

“India’s Monetary Policy Committee (MPC) kept the repo rate unchanged at 6.5% in a surprise decision. The unanimity to pause was another surprise.”

“We had expected the repo rate to peak at 6.75%. However, with today's pause, we believe the repo rate has peaked. The MPC is unlikely to see the need to hike further unless inflation once again moves above or closer to the upper threshold of the mandated band of 2-6% (with 4% the medium-term target). If such a scenario arises, the monetary policy hiking cycle may resume, beyond just one hike of 25 bps.”

“The INR reacted slightly negatively to the surprise policy decision, with USD/INR spot rising by c.0.2%. Nevertheless, we see this as a temporary setback for the INR. Given the improvement in India’s trade balance and broad USD weakness, we see rising downside risks to USD/INR in the near term.”