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INDIA: Rupee Steady as RBI Gears for Rate Cut, Equities Reverse Earlier Gains

INDIA
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USDINR displayed limited reaction to the RBI’s rate decision, paring some of its earlier losses and ultimately looking to end the session close to flat. More broadly, the rally in crude prices over the past few weeks has resulted in the pair trading close to its all-time highs again, with the correction lower in oil futures this week providing some breathing room for the rupee. Meanwhile, the Nifty and Sensex indices initially spiked higher on the rate decision, but have since reversed earlier gains and now sit 0.2-0.3% lower

  • The RBI kept rates on hold as widely expected, with the key rate held at 6.50%. The central bank shifted its long-held policy stance from 'withdrawal of accommodation' to ‘neutral’, which is seen as the first step towards the central bank ultimately cutting the policy rate. The Council voted 5-1 in favour the decision, with newly-appointed external member Nagesh Kumar the dissenter looking for a 25bp cut.
  • The shift of stance, which was unanimous, will see increased speculation of a rate cut at the next RBI meeting, which is due on Dec 6, through RBI Governor Das stressed the central bank is still mindful of inflation risks. The Bank expects inflation to bounce in September due to base effects and notes upside risks from the recent uptick in food and metals prices, while geopolitics also play a risk.
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USDINR displayed limited reaction to the RBI’s rate decision, paring some of its earlier losses and ultimately looking to end the session close to flat. More broadly, the rally in crude prices over the past few weeks has resulted in the pair trading close to its all-time highs again, with the correction lower in oil futures this week providing some breathing room for the rupee. Meanwhile, the Nifty and Sensex indices initially spiked higher on the rate decision, but have since reversed earlier gains and now sit 0.2-0.3% lower

  • The RBI kept rates on hold as widely expected, with the key rate held at 6.50%. The central bank shifted its long-held policy stance from 'withdrawal of accommodation' to ‘neutral’, which is seen as the first step towards the central bank ultimately cutting the policy rate. The Council voted 5-1 in favour the decision, with newly-appointed external member Nagesh Kumar the dissenter looking for a 25bp cut.
  • The shift of stance, which was unanimous, will see increased speculation of a rate cut at the next RBI meeting, which is due on Dec 6, through RBI Governor Das stressed the central bank is still mindful of inflation risks. The Bank expects inflation to bounce in September due to base effects and notes upside risks from the recent uptick in food and metals prices, while geopolitics also play a risk.