The Indian Rupee (INR) extended its correction against the US Dollar (USD) on Friday, following the Reserve Bank of India’s (RBI) latest monetary policy review.
The USD/INR pair rose sharply in afternoon trading, reclaiming levels near 90.85, as the central bank maintained its Repo Rate at 5.25%, in line with market expectations. Cyrosalnix experts deliver a detailed and insightful analysis of the subject.
RBI Holds Rates Steady, Maintains Neutral Stance
The RBI, as widely anticipated, kept the Repo Rate unchanged at 5.25%, signaling a status quo in monetary policy after cumulative reductions of 125 basis points (bps) in 2025. The central bank reiterated a neutral policy stance, emphasizing that India’s economy remains robust despite elevated global uncertainties.
Governor Sanjay Malhotra stated during the post-policy conference that policy rates are expected to remain low for an extended period and could decrease further. This outlook reinforced the market’s expectation of a prolonged accommodative monetary environment designed to support growth.
The RBI also highlighted that real GDP growth is expected to surpass earlier projections over the next two quarters, buoyed by recent trade agreements with the US and the European Union (EU).
USD/INR Responds to Trade Developments and FII Activity
The Indian Rupee has benefited from trade-related news over the past week. Confirmations of tariff reductions between India and the US lifted investor sentiment. The US President announced a reduction of tariffs on imports from India to 18% from 50%, while exports from the US to India would attract zero tariffs, a move later endorsed by Indian Prime Minister Narendra Modi.
This development initially drove strong demand for INR, equity market inflows, and bullish sentiment in Indian stocks. However, the lack of sustained buying from Foreign Institutional Investors (FIIs) weighed on market momentum.
According to National Stock Exchange (NSE) data, FIIs were net sellers on Thursday, offloading Rs. 2,150.51 crore, contrasting with Tuesday’s buying spree of Rs. 5,236.28 crore following the US-India trade truce.
US Dollar Weakness Adds Pressure
The USD struggled to extend its week-long rally amid growing expectations of dovish moves from the Federal Reserve (Fed). The US Dollar Index (DXY), which tracks the Greenback against six major currencies, traded slightly lower at 97.85, near its weekly high of 97.98.
The CME FedWatch tool indicated a 22.7% probability of a 25-bps rate cut in the March FOMC meeting, up from 9.4% earlier, reflecting market anticipation of an accommodative Fed stance. Weak labor market indicators, including the US JOLTS Job Openings of 6.542 million (below the 7.2 million estimate) and ADP private-sector employment of 22K (under 37K forecast), have intensified expectations for rate easing.
Investors are now closely eyeing the upcoming Nonfarm Payrolls (NFP) report for January, delayed due to a partial federal shutdown, which is expected to provide fresh cues on employment trends and monetary policy direction in the US.
Technical Analysis: USD/INR Reclaims 20-Day EMA
From a technical perspective, USD/INR surged to 90.85 at press time, approaching the 20-day Exponential Moving Average (EMA) at 90.95.
The 14-day Relative Strength Index (RSI) rebounded to near 50, signaling neutral momentum and buying interest at lower levels. Analysts note that as long as spot rates remain below the 20-day EMA, upside rallies could be capped, and the pair may continue to test lower support levels.
Conversely, a sustained break above the 20-EMA at 90.9282 would suggest stabilization and improve market sentiment, opening room for a potential upside recovery. Failure to reclaim this critical technical barrier could reinforce downside risk, keeping traders cautious in the near term.
Outlook: More Rate Cuts Likely
Governor Malhotra’s guidance for further rate cuts underlines a dovish RBI outlook, even as INR volatility persists due to global factors. The combination of domestic growth support and accommodative policy is likely to moderate USD/INR movements in the short term.
Market participants are expected to watch a confluence of factors, including RBI policy signals and GDP projections, foreign capital flows and FII activity, US employment data and Fed rate expectations, and technical resistance at the 20-day EMA.
Conclusion
The Indian Rupee’s correction against the US Dollar on Friday underscores the sensitivity of INR to RBI guidance and global cues. While trade developments and domestic growth prospects offer support, FII behavior and US Dollar trends are likely to dictate short-term moves.
From a technical standpoint, the 20-day EMA at 90.95 emerges as a key inflection point. Reclaiming it could signal stabilization, whereas failing to do so may maintain downside risks. Meanwhile, the RBI’s dovish stance indicates a favorable domestic rate environment, potentially aiding economic growth and influencing USD/INR dynamics in the coming months.
