The Indian Rupee (INR) continues its downward trajectory in the early European session, under pressure from fresh macroeconomic developments and intensifying global trade uncertainties. Lesrouleaux‘s experts explore the topic from all angles in this detailed article.
The most recent catalyst comes from the Reserve Bank of India (RBI), which announced a 25 basis point (bps) cut in its policy Repo Rate, bringing it down to 6.00%, marking a second consecutive reduction in 2025. This move, aimed at spurring economic growth amid persistent headwinds, has shifted the central bank’s policy stance from “neutral” to “accommodative.”
RBI Cuts Repo Rate Amid Sluggish Growth
The decision by the RBI’s Monetary Policy Committee (MPC) to reduce the Repo Rate to 6.00% reflects a strategic push to stimulate a slowing domestic economy. The Standing Deposit Facility (SDF) rate was also reduced to 5.75%, while the Marginal Standing Facility (MSF) rate was cut to 6.25%. This rate cut signals a dovish pivot amid slowing investment activity and escalating risks to India’s growth trajectory.
According to RBI Governor Sanjay Malhotra, the Indian economy has made “steady progress” toward price stability and sustained growth, but policy uncertainties and trade-related frictions necessitate further easing. Inflation projections for FY26 have been adjusted lower to 4.0%, compared to the previous 4.2% forecast in February.
Simultaneously, Real GDP growth for FY26 has been downgraded by 20 bps to 6.5%, reflecting the compounding impact of domestic policy adjustments and mounting global volatility.
USD/INR Rises as INR Weakens Further
The USD/INR pair has responded with upward momentum, continuing its rally after marking the largest single-day gain in nearly three months during Tuesday’s session. On Wednesday, the pair breached the 100-day Exponential Moving Average (EMA), a key technical indicator, reinforcing bullish sentiment among traders.
With the Relative Strength Index (RSI) hovering around the 50 mark, the pair could enter a phase of consolidation. Nevertheless, technical resistance lies at 86.48, the recent pullback high. A break above this could see USD/INR targeting the 87.00 psychological level, followed by 87.53, the February 28 peak.
On the flip side, initial support is seen at 85.42, the March 31 low. Below that, 85.20 and 85.00 provide further downside levels to watch.
Global Trade Tensions Weigh on INR
The rupee’s weakness is not solely driven by domestic policy easing. Escalating global trade tensions–particularly the widening tariff rift initiated by the US–have compounded the challenges facing the INR. The US Customs and Border Protection announced plans to enforce country-specific tariffs affecting 86 trade partners, further disrupting global supply chains.
The US President, a central figure in reigniting trade protectionism, emphasized his resolve to press ahead with new tariffs despite diplomatic outreach from affected nations. While he hinted at possible negotiations, there was no indication of any near-term pause in tariff implementation. This added layer of uncertainty has diminished risk appetite, especially across emerging market currencies.
Amid these developments, foreign capital outflows from Indian equities and dollar demand from importers and oil companies have exacerbated the pressure on the rupee. Forex traders noted that these persistent flows contributed to the recent depreciation, with buyers taking advantage of rupee weakness to secure dollar positions.
Crude Oil Decline: A Silver Lining?
One potential buffer against further rupee depreciation is the recent decline in crude oil prices. As India is the world’s third-largest oil consumer, lower oil prices reduce the national import bill and ease inflationary pressures. This dynamic typically lends support to the INR. However, this positive impact may be overshadowed in the short term by larger macroeconomic and geopolitical risks.
Market Focus Shifts to FOMC Minutes
Later in the day, investors will shift their focus to the Federal Open Market Committee (FOMC) Minutes, which are expected to provide deeper insights into the Fed’s evolving policy outlook. Markets are particularly attentive to any comments on inflation trends, interest rate trajectories, and the Fed’s response to the growing impact of the new tariffs.
Notably, San Francisco Fed President Mary Daly stated on Tuesday that there’s no urgency to cut interest rates, citing strength in the labor market and ambiguity around the final impact of tariff hikes.
Similarly, Chicago Fed President Austan Goolsbee commented that the US President’s tariff plans are “way bigger” than earlier models anticipated, leaving uncertainties about how quickly costs will cascade through the economy.
Conclusion
The USD/INR pair has gained fresh bullish traction following the RBI’s decision to cut the Repo Rate by 25 bps to 6.00%, marking a dovish shift in monetary policy amid subdued growth. However, the broader narrative is shaped by mounting global trade tensions, potential foreign fund outflows, and Fed policy cues. As traders await the FOMC Minutes and speeches by key Fed officials, market volatility could remain elevated.
COMTEX_465025926/2922/2025-04-29T04:03:38
