The Indian Rupee (INR) reversed early losses and strengthened to around 85.70 against the US Dollar (USD) during European trading hours on Friday, following an unexpected move by the Reserve Bank of India (RBI).
The central bank delivered a larger-than-expected 50-basis-point cut in its repo rate, bringing it down to 5.5%, alongside a 100-basis-point cut in the Cash Reserve Ratio (CRR) to 3%. This liquidity infusion of approximately ₹2.5 lakh crore marks the RBI’s most aggressive easing stance in recent years.
RBI Shifts Stance to Neutral After Third Straight Rate Cut
RBI Governor Sanjay Malhotra defended the bold move, stating that front-loading rate cuts were essential to stimulate economic growth amid global uncertainties. The policy committee voted 5-1 in favor of the cut, with member Saugata Bhattacharya advocating for a more traditional 25 bps reduction.
Importantly, the RBI also shifted its policy stance from “accommodative” to “neutral,” signaling a possible pause in the rate-cutting cycle. The shift suggests that future decisions will be data-dependent, with room to move in either direction.
Despite expectations that such a jumbo cut could weaken the rupee, the USD/INR pair dropped as investors viewed the rate cut as a proactive growth measure, balanced by the RBI’s cautionary stance and improved inflation outlook.
Inflation Outlook Improves, But Final Leg Remains Sticky
The central bank lowered its inflation forecast for FY26 to 3.7%, down from 4.0%, citing sustained progress in price stability. However, Governor Malhotra warned that “the last mile of inflation is turning out to be more protracted,” indicating a cautious watch on lingering price pressures.
The GDP growth forecast for FY26 remains unchanged at 6.5%, reflecting confidence in India’s underlying economic momentum despite global headwinds.
Market Focus Shifts to US NFP and Fed Policy Expectations
The movement in USD/INR is also being shaped by investor focus on the upcoming US Nonfarm Payrolls (NFP) report for May, due later today. The data will provide critical insight into the Federal Reserve’s monetary policy path.
The US Dollar Index (DXY) held steady near 98.80 after a recovery on Thursday, supported by optimism from President Trump’s remarks on US-China trade negotiations. Meanwhile, Fed rate cut expectations for July have climbed to 32.8%, up from 22.5% a week ago, fueled by disappointing US jobs and services data.
However, Fed officials remain cautious, warning that new tariffs may pose upside risks to inflation, delaying any immediate rate cut.
USD/INR Technical Outlook
On the technical front, USD/INR remains above its 20-day Exponential Moving Average (EMA) at 85.47, maintaining a short-term bullish tone. The 14-day RSI hovers around 60, and a break above could signal renewed upward momentum.
Resistance is seen near 86.10, the high from May 22, followed by 86.70, a multi-week peak. On the downside, immediate support lies at 85.30, with a further drop exposing 84.78 from late May.
Conclusion
The RBI’s aggressive policy easing and stance shift have added fresh momentum to the Indian Rupee, keeping USD/INR under pressure even as global uncertainties linger. With eyes now on the US jobs data and Fed outlook, the rupee’s next move will likely be shaped by a complex mix of domestic liquidity measures and external macroeconomic cues.
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