• Indian Rupee (INR) rises after a 25 bps hike
  • RBI hinted at more hikes to come
  • US Dollar (USD) falls after a less hawkish than feared Powell
  • More Fed speakers will be in focus

The US Dollar Indian Rupee (USD/INR) exchange rate is falling, snapping a four-day winning run. The pair settled +0.15% higher on Tuesday at 82.86. At 10:00 UTC, USD/INR trades -0.37% at 82.55 and trades in a range of 82.53 to 82.75.

The result is that India raised interest rates by 25 basis points on Wednesday as expected but surprised the market by suggesting that more rate hikes could be on the cards as core inflation remains elevated.

Most analysts had expected the move, which takes the key lending repo rate to 6.5%, to be the final hike in the rbi’s current hiking cycle, which has seen the central bank increase interest rates by 250 basis points since last May.

RBI governor Shaktikanta Das expressed concerns over the stickiness of core inflation, which he considers requires further action to bring lower.

India’s annual retail inflation cooled to 5.72% in December, down from 5.88% in November. This meant that it was within the rbi’s tolerance band of two to 6% for a second straight month. However, core inflation which strips out more volatile items such as food and fuel, remains at 6.1%.

The US Dollar is falling across the board. The US Dollar Index, which measures the greenback versus a basket of major currencies, trades -0.30% at the time of writing at 103.18, extending losses from the previous session.

The US dollar fell yesterday and is extending those declines today as investors continue to digest comments made by Federal Reserve Chairman Jerome Powell at the economics club of Washington. While Powell acknowledged the latest nonfarm payroll report was stronger than expected and reiterated that further interest rate rises were likely needed, he also said that he expects 2023 to be a year of significant declines in inflation. He said that the disinflation process was underway, although it would likely be a long process.

Powell’s comments were not as hawkish as the market had feared following Friday’s blowout jobs report, which showed that the US economy created 517,000 jobs in January.

Looking ahead in the absence of macroeconomic data releases, today’s fed speakers will be very much under the spotlight. New York Fed president Williams, Atlanta Fed president Bostic, and Minneapolis Fed president Kashkari are due to speak.