The Indian Rupee is weakening against the US Dollar for a second straight session on Friday. The Indian Rupee settled 0.09% lower at 75.62 on Thursday.
At 11:45 UTC, USD/INR is trading +0.35% at 75.88. This is mid-way between the daily traded range of 75.62 – 76.01 after the Reserve Bank of India unexpectedly cut one of its interest rates.
RBI Cuts Repo Rate to 4%
The Indian Rupee slipped mildly lower after the RBI cut interest rates to the lowest level in 2 decades. Governor Shaktikanta Das announced a repo cut of 40 basis points to 4%. The repo rate is the interest rate at which banks borrow from the central bank. The move is designed to encourage banks to lower home and business loan interest rates.
The monetary policy committee voted unanimously to cut rates and boost money supply in the economy as the Indian economy heads towards an economic contraction this year. The RBI said that India’s GDP will be in negative territory in 2020 – 21 owing to the coronavirus outbreak and the disruption it caused to economic activities.
The top 6 industrialised states that account for 60% of India’s industrial output are mainly in red and orange zone. These zones are still in lockdown or with limited lockdown easing measures. The RBI also highlighted the collapse in demand that India is experiencing, with private consumption, which accounts for 60% of domestic demand seeing the biggest blow.
The RBI said that they expect headline inflation to remain firm in the first half of the current financial year and ease lower in the second part of the year.
US – China Tensions Boost USD
The US Dollar pushed northwards as flows into safe haven assets and currencies increased on renewed US – China tensions.
Reports that China plans to impose a national security law in Hong Kong has unnerved investors, bypassing the territory’s Legislative Council is unnerving investors. President Trump was quick to respond, warning China against limiting freedom in the financial hub.
China’s plans threaten to not only re-ignite pro-democracy protestors but also cool already fragile US – Sino relations.
There is no high impacting US data due for release today. Investors will continue monitoring US – China developments.