The Indian Rupee (INR) remained near a record low on Wednesday, as traders adjusted their positions following the appointment of Sanjay Malhotra, a career bureaucrat, as the next Governor of the Reserve Bank of India (RBI). Market participants are increasingly speculating that Malhotra’s appointment may signal a dovish shift in the RBI’s monetary policy, potentially leading to interest rate cuts that could weigh on the local currency. In addition, the INR faced pressure from the broader decline in Asian currencies and persistent strength in the US Dollar (USD), driven by demand from importers and foreign banks.
Despite the downward pressure on the INR, the currency’s weakness may be capped by the RBI’s foreign exchange interventions. The central bank typically acts to curb sharp depreciation by managing liquidity, including selling USD to stabilize the INR. Traders are also focusing on key economic data later in the week, with the US Consumer Price Index (CPI) set for release on Wednesday and India’s own CPI, Industrial Output, and Manufacturing Output data scheduled for Thursday.
Monetary Policy Expectations Shift Following RBI Leadership Change
Economists anticipate that the exit of RBI Governor Shaktikanta Das, known for his hawkish stance, could lead to a more dovish tilt in India’s monetary policy committee. Das, along with RBI Deputy Governor Michael Patra, was considered one of the more aggressive members of the six-member rate-setting panel. Following Malhotra’s appointment, analysts at Capital Economics predict a 25 basis-point rate cut at the first Monetary Policy Committee (MPC) meeting under his leadership in February, or potentially even sooner in an unscheduled meeting. In contrast, previous expectations had pointed to such a cut occurring in April under Das’s leadership.
Market reactions reflected these expectations, with India’s 10-year bond yields dropping by 2 basis points to 6.699% on Tuesday, signaling a likely shift toward rate cuts. On Tuesday, S&P Global Ratings also projected India’s economy to grow by 6.8% in FY25 and 6.9% in FY26, driven by strong urban consumption, stable service sector growth, and ongoing infrastructure investment.
USD/INR Technical Outlook
While the INR is under pressure, the USD/INR pair continues to maintain a bullish bias in the longer term, supported by broader USD strength. On the daily chart, the pair is trading well above the key 100-day Exponential Moving Average (EMA), but the 14-day Relative Strength Index (RSI) is in overbought territory, hovering near 72.75. This suggests potential consolidation before any further appreciation of the USD/INR.
The upper boundary of the ascending trend channel and the psychological level of 85.00 remain critical resistance levels for the pair. A sustained move above these levels could trigger a rally toward 85.50. On the downside, the trend channel’s lower boundary and the December 9 low of 84.65 provide initial support, with a break below this zone potentially pushing the pair lower toward 84.22 and 84.08, the 100-day EMA.
Market sentiment is also heavily influenced by global developments, with traders pricing in an 85.8% probability of a 25-basis point rate cut by the US Federal Reserve in its upcoming December meeting, according to the CME FedWatch Tool.
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