The Indian Rupee (INR) fell against the US Dollar (USD) on Friday, with the USD/INR pair rebounding to around 90.25, following the Reserve Bank of India (RBI) announcement of tight monetary policy. The Reserve Bank of India (RBI) cuts the repo rate by 25 basis points to 5.25%, announces an infusion of Rs. 1 lakh crore into the economy through open market operations (OMO), an instrument through which India’s central bank buys government securities and a three-year US dollar-Indian rupee swap worth $5 billion in December.
The Reserve Bank of India explained that members unanimously decided to reduce borrowing rates amid calming inflationary pressures. Reserve Bank of India (RBI) Governor Sanjay Malhotra said that the headline inflation rate has eased significantly and is likely to remain below expectations.
The central bank expects headline and core inflation to remain below 4% during the first half of 2026. For the current fiscal year, the Reserve Bank of India has revised inflation expectations to 2.0% from 2.6% expected earlier. Taking strong cues from the third quarter GDP data, the Reserve Bank of India raised its growth forecast for the current financial year to 7.3% from 6.8%.
On the foreign exchange reserves front, the Reserve Bank of India said it has a healthy reserve of US$686 billion that can provide cover for imports for more than 11 months. Governor Malhotra also expressed confidence that the external sector remains “resilient” and that the central bank is “confident of meeting external financing requirements comfortably.”
The dovish monetary policy announcement by the Reserve Bank of India is expected to put pressure on the Indian rupee going forward, which is already facing the burden of continuous outflow of foreign funds from the Indian stock market amid tariff issues with the US.
Foreign institutional investors (FIIs) turned out to be net sellers in all the four trading days of December, offloading shares worth Rs. 9,964.72 crores in this period. Foreign investors also remained net sellers in all months since July.
The table below shows the percentage change in the Indian Rupee (INR) against the major currencies listed today. The Indian rupee was the weakest against the Japanese yen.
| US dollars | euro | GBP | JPY | Canadian | Australian dollar | Indian rupee | Swiss franc | |
|---|---|---|---|---|---|---|---|---|
| US dollars | -0.11% | -0.14% | -0.32% | -0.07% | -0.19% | 0.14% | -0.12% | |
| euro | 0.11% | -0.03% | -0.23% | 0.05% | -0.06% | 0.24% | -0.00% | |
| GBP | 0.14% | 0.03% | -0.21% | 0.08% | -0.05% | 0.29% | 0.03% | |
| JPY | 0.32% | 0.23% | 0.21% | 0.29% | 0.15% | 0.47% | 0.22% | |
| Canadian | 0.07% | -0.05% | -0.08% | -0.29% | -0.13% | 0.19% | -0.05% | |
| Australian dollar | 0.19% | 0.06% | 0.05% | -0.15% | 0.13% | 0.33% | 0.06% | |
| Indian rupee | -0.14% | -0.24% | -0.29% | -0.47% | -0.19% | -0.33% | -0.25% | |
| Swiss franc | 0.12% | 0.00% | -0.03% | -0.22% | 0.05% | -0.06% | 0.25% |
The heat map shows the percentage changes in major currencies versus each other. The base currency is chosen from the left column, while the counter currency is chosen from the top row. For example, if you select the Indian Rupee from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent INR (base)/USD (quote).
Daily summary of market drivers: The US dollar fell to a five-week low on the Fed’s dovish bets
- The Indian rupee is falling against the US dollar, even as the US dollar struggles to maintain its immediate lows. At press time, the US Dollar Index (DXY), which tracks the value of the US currency against six major currencies, is falling near a five-week low around 98.75.
- The outlook for the US dollar remains weak as the Federal Reserve (US central bank) is widely expected to cut interest rates at its monetary policy meeting next week. According to a Reuters poll conducted from November 28 to December 4, 82% of economists surveyed expected that the Fed would cut key borrowing rates by 25 basis points to 3.50%-3.75% to support deteriorating labor market conditions.
- The Fed’s dovish, upbeat outlook is at odds with minutes from the October Federal Open Market Committee (FOMC) meeting, which showed that many members did not necessarily view a December cut as appropriate, while remaining confident that further interest rate cuts will be needed in the distant future.
- At next week’s monetary policy meeting, investors want to know how much further the Fed will cut interest rates if it decides to cut the federal funds rate by 25 basis points. In addition, investors will pay close attention to the Federal Reserve’s guidance on the labor market outlook.
- Meanwhile, labor demand has weakened significantly, partly due to the growing acceptance of artificial intelligence by companies. The private sector lost 32,000 jobs in November, while 5,000 new workers were expected to be added, the US ADP report said on Thursday.
- In Friday’s session, investors will focus on the US Personal Consumption Expenditure (PCE) Price Index data for September, which will be released on Friday.
Technical Analysis: USD/INR holds the key 20-day Moving Average (EMA)
USD/INR rises to around 90.25 on Friday. The pair corrected on Thursday after hitting a new all-time high around 90.70.
The 14-day RSI is falling to near 67.50 after turning into overbought territory around 76.14, indicating a slowdown in extended momentum.
Initial support is located at the 20-day Exponential Moving Average (EMA) near 89.44; Above this measure, the uptrend will remain in place. On the upside, the pair may extend its rise towards 91.00.
Frequently asked questions about Indian economy
The Indian economy has averaged a growth rate of 6.13% between 2006 and 2023, making it one of the fastest growing economies in the world. India’s high growth has attracted a lot of foreign investment. This includes foreign direct investment (FDI) in physical projects and foreign indirect investment (FII) by foreign funds in Indian financial markets. The higher the investment level, the greater the demand for the rupee (INR). Fluctuations in dollar demand from Indian importers also affect the Indian rupee.
India has to import a significant amount of its oil and gasoline needs, so the oil price can have a direct impact on the rupee. Oil is mostly traded in US dollars (USD) in international markets, so if the price of oil rises, the overall demand for USD increases and Indian importers have to sell more rupees to meet this demand, which leads to a depreciation of the rupee.
Inflation has a complex impact on the rupee. It ultimately indicates an increase in money supply which reduces the overall value of the rupee. However, if the interest rate rises above the RBI’s target level of 4%, the bank will raise interest rates to bring it down by reducing credit. Rising interest rates, especially real rates (the difference between interest rates and inflation) boost the rupee. It makes India a more profitable place for international investors to put their money. Lower inflation could be supportive for the rupee. Meanwhile, low interest rates could have a negative impact on the rupee.
India has run a trade deficit for most of its modern history, suggesting that its imports exceed its exports. Since the majority of international trade is conducted in US dollars, there are times – due to seasonal demand or abundant demand – when a high volume of imports creates a large demand for US dollars. During these periods the rupee can weaken as it is sold heavily to meet the demand for dollars. When markets witness increased volatility, demand for the US dollar can also rise with a corresponding negative impact on the rupee.
