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The RBI cut the repo rate by 25 bps as expected today leaving the door open for further easing amid record low inflation. In the press conference, Governor Malhotra signalled the intention to diminish the central bank’s intervention in the market to stop the rupee depreciation.History teaches that it’s useless for a central bank to intervene in the market as long as the fundamentals remain against a currency. In fact, the fundamentals continue to point to further depreciation amid RBI’s rate cuts and the limited progress on the US-India trade talks front.In the USD/INR chart above, we can see that the pair recently pulled back into the 89.70 support and bounced today following the RBI’s rate cut. We now have a minor resistance zone around the 90.00 handle. A break above the resistance should see the pair extending the move into a new all-time high (all-time low for the INR). On the other hand, a break below the 89.70 support, will likely lead to a deeper pullback into the 89.00 handle.
This article was written by Giuseppe Dellamotta at investinglive.com.
💡 DMK Insight
The RBI’s 25 bps repo rate cut is a clear signal for traders: the central bank is prioritizing growth over inflation control. With inflation at record lows, this move could lead to a weaker rupee, impacting forex traders significantly. Governor Malhotra’s comments about reducing intervention suggest a hands-off approach, which might allow market forces to dictate the rupee’s value more freely. This could create volatility, especially if the rupee depreciates further, potentially affecting import costs and trade balances. Traders should keep an eye on the USD/INR pair, as a break above recent highs could trigger further selling pressure on the rupee. Additionally, the broader implications for equities and commodities could be substantial, as a weaker rupee often boosts export-driven sectors while hurting importers. Watch for the next inflation report and any comments from the RBI regarding future monetary policy. If inflation remains subdued, expect more easing, which could further weaken the rupee and create trading opportunities in both forex and related asset classes.
📮 Takeaway
Monitor the USD/INR pair closely; a break above recent highs could signal further rupee weakness and trading opportunities.
