inr-bank-notes - INR
  • Indian inflation hit 7.3% in September its highest level since February
  • 6th straight month above 6% RBI upper bound
  • US Dollar (USD) trades broadly higher versus major peers on safe haven flows
  • US inflation up next, expected to slow to +0.2% in September

The US Dollar Indian Rupee (USD/INR) exchange rate is dipping lower on Tuesday after strong gains in the previous session. The pair settled +0.48% higher at 73.36 on Monday. At 10:15 UTC, USD/INR trades -0.1% at 73.29.

Retail inflation in India grew at 7.3% in September, its highest since pre-pandemic in February. This was up from 6.7% in August and ahead of 6.9% forecast by analysts. The rise in inflation was mainly driven by rising food prices, specifically vegetables, which has become a concern for the Indian economy.

Rising inflation and slow economic growth is a troubling combination for the Reserve Bank of Indian to deal with. The central bank has chosen not to raise interest rates to bring inflation down, in order to protect the fragile economic growth that there is. This is the 6th straight month that inflation has been above the central bank’s 6% upper bound.

The central bank said at their most recent meeting that they believe that the spike higher in inflation will be short lived. Historically food prices rise between March and October and fall between November and February. This trend is also expected to play out this year.

The US Dollar is slightly lower versus the Rupee, however it is rising versus its major peers on safe haven flows in risk off trading. The market mood has turned sour on disappointing vaccine news after Johnson and Johnson pause the covid vaccine candidate trial after a participant fell ill.

The absence of any Congressional agreement for a covid fiscal stimulus package is also dragging on sentiment.  With just three weeks to go until the US Presidential elections the expectation is that a stimulus deal won’t be agreed until after November 3rd election day.

Attention will now turn to US inflation data. Consumer prices are expected to increase +0.2% month on month in September, down from 0.4% in August.