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Rupee Strengthens as India Leaves Interest Rates Unchanged

Rupee Strengthens as India Leaves Interest Rates Unchanged

Martin Essex, MSTA, Analyst

Talking Points

- USD/INR weakens after India’s central bank leaves interest rates on hold rather than lowering them as many forecasters had predicted.

- The Rupee is now at its highest against the US Dollar since November last year.

- See the DailyFX Economic Calendar and see what live coverage for key event risk impacting FX markets is scheduled for the week on the DailyFX Webinar Calendar.

USD/INR weakened Wednesday to its lowest since November 10 last year after a largely unexpected decision by the Reserve Bank of India to leave its benchmark interest rates where they were. In a Reuters poll, 30 of 46 forecasters questioned had predicted that rates would be lowered.

Chart: USDINR Daily Timeframe (November 2016 to February 2017)

Rupee Strengthens as India Leaves Interest Rates Unchanged

The unanimous RBI decision to keep its repo rate at 6.25% inevitably raises speculation that the next move in Indian interest rates could be up rather than down, lifting the yield on the 10-year Indian government bond to 6.75%, its highest since November 8. While the RBI has been cutting rates, it’s possible that it might now decide to reverse course to combat rising inflation at a time when the “demonetization” of the economy has had less impact on it than some had expected.

Indian Prime Minister Narendra Modi announced on November 8 last year that 500 and 1,000 Rupee notes would no longer be legal tender in a decision he described as a move against corruption.

--- Written by Martin Essex, Analyst and Editor

To contact Martin, email him at martin.essex@ig.com

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