Home INR USD/INR: Rupee Falls As Questions Grow Over RBI’s Next Move

USD/INR: Rupee Falls As Questions Grow Over RBI’s Next Move

16th July 2020

Indian Rupee (INR) trends lower in risk off trading, which boosts the safe haven US Dollar
Inflation ticks above RBI’s margin raising doubts over whether RBI will continue with its cutting cycle next month
Chinese retail sales fall for 5^th straight month as consumption fails to pick up
US retail sales in focus

The US Dollar Indian Rupee is grinding higher on Thursday, paring losses from the previous session. The pair settled on Wednesday -0.3% at 75.12. At 11:15 UTC, USD/INR trades +0.15% at 75.24

According to the latest data released by the Ministry of Statistics & Programme Implementation (MoSPI) Indian retail inflation, as measured by the consumer price index increased +6.09% in June. The government didn’t release headline CPI data in April and May in the lockdown period.

Inflation has pushed above the Reserve Bank of India’s upper margin of 6% as the pandemic restrictions have been released and demand for non-essential items and activities has lifted.

Despite inflation piercing the upper RBI’s upper margin, the central bank has said that it will continue with the rate cutting cycle in light of the economic damage caused by the coronavirus crisis.

Some market analysts and economists argue that it could be prudent of the RBI to sit tight at the next monetary policy meeting when it convenes early next month.

The central bank has cut its lending rate by 115 basis points in 2020, in addition to 135 basis points cut in 2019. Market participants had factored in a 25-basis point cut when the MPC meet on 6^th August.

The broad risk off mood in the market was weighing on the riskier Rupee whilst also boosting the safe haven US Dollar.

Risk version dominated despite China recording a better than expected 3.2% jump in economic growth. Analysts had been forecasting 2.5% GDP growth. However, retail sales in the world’s second largest economy portrayed a worrying trend dropping for the 5^th straight month. Chinese consumers are exercising caution which investors fear could be mirrored across the globe.

Investors will now look ahead to US retail sales. US retail sales are expected to show a 5% month on month increase. This is slightly down from May’s 17.7%. A weaker reading could unnerve investors.