The Indian Rupee (INR) slid toward near-record lows on Thursday, pressured by a sharp drop in the Chinese Yuan and rising demand for US Dollars (USD) from importers and foreign banks. Market sentiment was further influenced by the recent appointment of Sanjay Malhotra, a career bureaucrat, as the new Governor of the Reserve Bank of India (RBI). Traders are now anticipating interest rate cuts under his leadership, potentially adding to downward pressure on the INR.
Despite the rupee’s ongoing struggles, analysts believe its decline may be limited, as the Reserve Bank of India is likely to intervene in the currency markets to curb excessive depreciation. Historically, the RBI has stepped in by selling USD reserves to stabilize the INR when it faces significant downward pressure.
In the broader financial landscape, traders are closely monitoring key economic data releases. The US November Producer Price Index (PPI) and weekly Initial Jobless Claims figures are due later today, while India will also release its Consumer Price Index (CPI) inflation, Industrial Output, and Manufacturing Output data. These releases could provide additional insights into the global and domestic economic conditions that are influencing the currency markets.
Foreign Investment Outflows and Domestic Market Stability
Foreign Institutional Investors (FIIs) were net sellers in India’s capital markets on Wednesday, offloading shares worth Rs 1,012.24 crore, according to exchange data. However, Indian equities showed resilience on Thursday, with IT stocks leading a mild rally amid expectations of a potential US rate cut. The NSE Nifty 50 index was largely flat at 24,638 points, while the BSE Sensex held steady at 81,566.06.
India’s Chief Economic Advisor, Anantha Nageswaran, expressed confidence that the country’s economy would achieve a growth rate of 6.5% to 7% in FY 25. He highlighted the importance of maintaining this growth trajectory, while projections for FY26 suggest GDP growth could rise to 7%, driven by a revival in capital expenditure, fiscal spending, and potential cuts to the cash reserve ratio (CRR) that could stimulate credit growth.
Economists at Axis Bank predict a GDP boost from a recovering capex cycle and fiscal easing, which, combined with a likely reduction in the CRR, could set the stage for further economic expansion.
Rate Cuts and Global Economic Trends
Global economic conditions are also weighing on the Indian Rupee. Economists at Capital Economics foresee a potential 25 basis point cut in India’s repo rate at Malhotra’s first meeting of the Monetary Policy Committee (MPC) in February, though an unscheduled rate cut could come sooner. Market expectations of US rate cuts also remain high, with Fed funds futures pricing in a near-certainty of a rate reduction by the Federal Reserve in December.
Meanwhile, US inflation data showed a slight uptick in the Consumer Price Index (CPI) to 2.7% YoY in November, up from 2.6% in October, in line with market forecasts. Core CPI, which excludes food and energy prices, remained steady at 3.3%. These inflation readings suggest that while inflationary pressures persist, they are not rising sharply, leaving the door open for further rate cuts by the Federal Reserve.
Technical Outlook for USD/INR
From a technical perspective, the USD/INR currency pair remains in a bullish posture, supported by the 100-day Exponential Moving Average (EMA). The 14-day Relative Strength Index (RSI) is positioned above the midline near 67.70, indicating that upward momentum may continue. A key resistance level is seen at 85.00, a psychological barrier that could trigger a rally to 85.50 if breached. On the downside, the lower boundary of the ascending trend channel at 84.70 serves as initial support. A sustained break below this level could see the pair test 84.22, followed by the 100-day EMA at 84.10.
In conclusion, while the Indian Rupee faces significant challenges from both global and domestic factors, intervention from the RBI and broader economic resilience may help cushion the currency’s decline in the near term. Traders and investors will be closely watching upcoming data releases and policy decisions for further clues on the INR’s trajectory.
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