The Indian Rupee (INR) showed signs of recovery on Friday, bouncing back from its record-low levels after a sharp dip in the previous session. The move followed the Reserve Bank of India (RBI) Governor Shaktikanta Das’ announcement of the central bank’s fifth monetary policy of the fiscal year 2024-25. The RBI held the repo rate steady at 6.50% for the 11th consecutive meeting and maintained a neutral policy stance, signaling caution amid ongoing economic challenges.
While the INR received immediate support from the RBI’s decision, factors like a strong US Dollar and cautious market sentiment may continue to limit its gains. The recent dip in crude oil prices and strength in domestic markets could offer some backing for the local currency.
The RBI raised its inflation forecast for FY25 from 4.5% to 4.8% and lowered its GDP growth estimate to 6.6% from an earlier 7.2%. Additionally, the RBI introduced a new benchmark—the Secured Overnight Rupee Rate (SORR)—aimed at enhancing the interest rate derivatives market in India. The central bank also reduced the Cash Reserve Ratio (CRR) by 50 basis points to 4%.
Market participants are now focused on the US employment report, which includes key data on Nonfarm Payrolls and unemployment, as well as comments from Federal Reserve officials Michelle Bowman and Austan Goolsbee.
Despite the INR’s short-term recovery, analysts remain cautious. “The rupee may trade with a negative bias due to the strong dollar and concerns over an economic slowdown, though lower crude oil prices and fresh foreign investment may provide support at lower levels,” said Anuj Choudhary, a research analyst at Mirae Asset Sharekhan.
The Indian central bank’s foreign reserves have also been steadily declining, dropping from USD 705 billion to USD 656.58 billion as of November 22, 2024, as per a Union Bank study. In the US, weekly initial jobless claims rose to 224K for the week ending November 29, surpassing market expectations.
Technically, the USD/INR pair remains bullish, supported above the 100-day Exponential Moving Average (EMA), though bearish divergence signals a potential slowdown in gains. A break above the 84.77 resistance could push the pair to 85.00, with further upside capped at 85.50. Conversely, a dip below 84.60 may see the pair test lower levels, with key support at 84.05-84.00.
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