The Indian Rupee (INR) depreciated to near 85.53 vs. the US Dollar (USD) during Thursday’s early-European trading session. This drop came on the tail end of a powerful five-day positive run for the token. India Consumer Price Index (CPI) has become the market’s most awaited data point every month. Analysts are looking for a small uptick in inflation. Despite facing backlash from uncertainties surrounding the United States’ tariff policy, the USD/INR pair rebounded, highlighting the Indian Rupee’s ongoing underperformance against major currencies.
While traders awaited the CPI report blocks away, the INR opened poorly against each of its major peers. Especially against the Japanese Yen, it could not find direction. The Indian currency’s standing in the pegged foreign exchange market is still poor. Both bulls and bears will need to continue to watch important support and resistance levels closely.
Economic Context and CPI Expectations
Economists see May India’s retail headline inflation continuing easing trend. They’re forecasting it to be at 3%, down from April’s 3.16%. This expected easing in inflation is not out of sync with the recent actions taken by India’s Reserve Bank of India (RBI).
Last week during its monetary policy meeting, the RBI made some bold changes. 25th 2019, they changed their state of monetary policy from “accommodative” to “neutral,” reduced the Repo Rate by 50 basis points to 5.5% and reduced Cash Reserve Ratio (CRR) by 100 basis points to 3%. Taken together, these measures signal the central bank’s willingness to support economic growth in the context of a rapidly evolving inflation environment.
The next CPI report will be an important gauge of the extent of price pressures in the Indian economy. According to analysts, a softer inflation print would further validate RBI’s current neutral stance. This realignment could have long-run implications for the conduct of monetary policy, too.
Market Reactions and Currency Dynamics
Still, the USD/INR pair has been resilient even as the Indian Rupee has faltered. The US Dollar Index (DXY) is near 98.30 as of this writing, showing that the dollar is mostly higher against a number of currencies. Market participants are understandably focused on the form that re-regulation may take. If the USD/INR pair breaks above its recent peaks, it might continue up to levels last seen in over 11 weeks, possibly targeting around 86.70 after clearing May 22’s peak of 86.10.
Analysts are troubled by the INR’s volatility. If it is unable to maintain its footing, they caution that it may fall below significant support levels. Any breach under 85.30 would leave the currency vulnerable to deeper losses, perhaps retesting the May 26 bottom of 84.78.
“Willing to extend trade deadlines but won’t need to.” – US President Donald Trump
The ambiguity from ongoing trade talks and US tariff policies still hangs over investor sentiment. Recent umbrage from President Trump, accompanied by threats of increased tariffs, underscore that the international trade policy environment is still uncertain and could make currency values even more unpredictable.
The Road Ahead for the Indian Rupee
That indeed is the near-term outlook for the Indian Rupee. It was never meant to be sound money. It can barely survive high market demands against other leading fiat currencies. The INR has found it difficult to sustain above its 20-day Exponential Moving Average (EMA), presently at 85.48. Even the most positive market observers understand the need for immediate actions to stabilize the currency. If they don’t, they face greater volatility and possible loss.
As traders await the CPI data release, they will be looking for any indications that could suggest shifts in economic policy or changes in market sentiment. The results will have a profound impact on the INR’s short-term trajectory. In particular, they will establish a clear precedent for what future monetary policy should look like from the RBI.