Indian Rupee: RBI dilemma on rates and FX – Societe Generale

Societe Generale analysts note recent relief for the Indian Rupee after aggressive RBI intervention to keep it below 95.00. Focus is on Friday’s policy decision, with a 25 bp hike seen as possible given regional tightening. However, sources suggest the RBI prefers FX operations and inflow measures over rate hikes to support the INR.

Policy choice between hikes and FX tools

"In EM, the relief for the INR begs the question if the RBI will skip this week’s meeting after intervening aggressively last week to peg the rupee back below 95.00."

"Further, it transferred a record INR2.87tn ($30.1bn) dividend to the government for 2026 but the bond markets opted to ignore it, keeping the 10y IGB yield around 7.00%."

"Focus turns to the rate decision on Friday. A run of record lows for the currency, the rate hike in Indonesia and hawkish shift in South Korea have lowered the bar for the RBI to come off the fence and potentially tighten by at least 25bp (SG view)."

"Sources indicate that the RBI is not inclined to defend the currency by raising the cost of borrowing and favours FX intervention and measures to attract dollar inflows instead so the INR appreciates and blunts the effects of imported energy inflation."

"1Q GDP data on Friday is forecast to moderate to 6.8% yoy from 7.8% in 4Q."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)