INR: USDINR Rallies Above 87.00, RBI Rate Cut Expected This Week

USDINR surged past the 87.00 handle for the first time ever as Trump’s tariff rollouts roiled global markets. INR weakness followed a slump across wider Asia FX, with the RBI’s expected easing move later in the week a potential upcoming headwind.

• Finance Minister Nirmala Sitharaman presented India’s budget over the weekend. Among the most important proposals announced were tax cuts aimed at low-income earners, while the government is now also targeting a smaller budget deficit of 4.4% of GDP for FY 2026, compared to a revised-down 4.8% (4.9% previously) in the current fiscal year.
• The government’s commitment to fiscal consolidation may place greater pressure on monetary authorities to support growth via easier policy when they meet on Feb 7. The central bank’s recent $18bln of liquidity injection measures has likely cleared the way for the start of rate cuts with a 25bp easing step – the broad consensus among sell-side.
• SocGen say the budget “deserves a praise for trying to balance the growth imperatives within the contours of the fiscal limits” but also note that, “it could have been bolder and there are a few misses, especially lack of focus on non-tax revenue”.
• Meanwhile, JPM note that if this year’s budgeted deficit is achieved, the total public sector borrowing requirement in 2025-26 will reduce to 7.6% of GDP, which is comparable to levels seen back in 2017-18. "So not only would all the pandemic-induced fiscal support been withdrawn, but then some."