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The USD/INR currency pair is currently holding around the 71.45 level, but further dovish tone from the Reserve Bank of India (RBI) could exert upside bias to the pair, according to the latest research report from Commerzbank.
The new Reserve Bank of India (RBI) Governor Shaktikanta Das surprised with a 25bp rate cut to 6.25 percent against expectations of no change. Governor Das is the third RBI Governor in three years following the abrupt resignation of Urjit Patel last December.
The rates market was not pricing in any move with the 3-month overnight swaps holding around 6.57 percent before the decision. On paper, there was seemingly a case for RBI to shift to a neutral stance or at least tone down its current “calibrated tightening” bias.
This is because headline inflation slipped to the low 2 percent level in Q4 2018, at the lower end of RBI’s 2-6 percent target range. However, it did catch the market by surprise as to how swiftly the new governor acted.
It effectively ignored the core inflation reading which was still at the upper end of the band, at 5.7 percent in 2018. As such, RBI’s independence could once again be questioned by the markets.
