- Indian Rupee loses traction in Thursday’s early European session.
- The softer India’s retail inflation increased the likelihood of more rate cuts by RBI, weighing on the INR.
- Traders brace for the US April Retail Sales and PPI data, due later on Thursday.
The Indian Rupee (INR) softens on Thursday. The cooler-than-expected India’s retail inflation, which dropped to its lowest level since July 2019, exerts some selling pressure on the INR, as it could give the Reserve Bank of India (RBI) another chance to cut rates next month in its scheduled meeting.
However, the de-escalation of a trade war between the United States (US) and China, along with the fall in Crude oil prices and the weakness of the US Dollar (USD), could provide some support to the Indian currency. Looking ahead, traders await the release of top-tier US economic data due later on Thursday, including Retail Sales and Producer Price Index (PPI) for April. The Federal Reserve (Fed) Chair Jerome Powell is scheduled to speak later on the same day.
Indian Rupee drifts lower on softer retail inflation report
- India’s Wholesale Price Inflation (WPI) fell to a 13-month low of 0.85% in April from 2.05% in March, according to the Commerce and Industry Ministry on Wednesday. This figure came in below the market consensus of 1.76%.
- “Positive rate of inflation in April, 2025 is primarily due to an increase in prices of manufacture of food products, other manufacturing, chemicals and chemical products, manufacture of other transport equipment, and manufacture of machinery and equipment, etc,” noted the Industry Ministry.
- San Francisco Fed President Mary Daly said late Wednesday that the strength of the US economy allows policymakers to be patient as they wait for more evidence of how Trump’s policies will affect businesses and households.
- Markets have dialed back expectations for rate cuts from the Fed this year, pricing in a 74% chance of the first cut of at least 25 basis points (bps) at the September meeting, according to LSEG data, compared with the prior view for a cut in July.
USD/INR retains a bearish bias in the longer term
The Indian Rupee trades in negative territory on the day. The bearish tone of the USD/INR pair remains in place, with the price holding below the key 100-day Exponential Moving Average (EMA) on the daily chart. Nonetheless, further consolidation or temporary recovery cannot be ruled out as the 14-day Relative Strength Index (RSI) hovers around the midline, indicating neutral momentum in the near term.
The first downside target for USD/INR is seen at 84.95, the low of April 28. Any follow-through selling below the mentioned level could see a slide toward 84.61, the low of May 12. The next contention level to watch is 84.12, the low of May 5.
On the other hand, the immediate resistance level for the pair is located at 85.60, the 100-day EMA. A break above this level might even spark a run toward the 86.00-86.05 zone, which marks both a round figure and the upper boundary of the trend channel.
RBI FAQs
The role of the Reserve Bank of India (RBI), in its own words, is “..to maintain price stability while keeping in mind the objective of growth.” This involves maintaining the inflation rate at a stable 4% level primarily using the tool of interest rates. The RBI also maintains the exchange rate at a level that will not cause excess volatility and problems for exporters and importers, since India’s economy is heavily reliant on foreign trade, especially Oil.
The RBI formally meets at six bi-monthly meetings a year to discuss its monetary policy and, if necessary, adjust interest rates. When inflation is too high (above its 4% target), the RBI will normally raise interest rates to deter borrowing and spending, which can support the Rupee (INR). If inflation falls too far below target, the RBI might cut rates to encourage more lending, which can be negative for INR.
Due to the importance of trade to the economy, the Reserve Bank of India (RBI) actively intervenes in FX markets to maintain the exchange rate within a limited range. It does this to ensure Indian importers and exporters are not exposed to unnecessary currency risk during periods of FX volatility. The RBI buys and sells Rupees in the spot market at key levels, and uses derivatives to hedge its positions.
