USD/INR drops as RBI holds Repo Rate steady at 5.5%, raises GDP forecasts

• The Indian Rupee gains against the US Dollar to near 88.85 after the RBI kept the Repo Rate steady at 5.5%, as expected.
• The RBI has raised GDP forecasts for the current year to 6.8%.
• US government shutdown risks keep the US Dollar on the back foot.

The Indian Rupee (INR) attracts bids against the US Dollar (USD) after the monetary policy announcement by the Reserve Bank of India (RBI). The USD/INR pair falls to near 88.85 as the RBI has kept the Repo Rate steady at 5.5%, as expected, and has stated that inflationary pressures could remain lower in the wake of Goods and Services Tax (GST) cuts announced by the government in August, which have become effective from late September.

Financial market participants had already anticipated that the RBI would maintain the status quo as it would be needed to perform a delicate balancing act between GST cuts and dampening the export market.

India's export sector has been hit badly since the increase in tariffs to 50% on imports from New Delhi to the United States (US). President Donald Trump raised import duty on Indian products as a penalty in response to buying Oil from Russia.

Meanwhile, RBI Governor Sanjay Malhotra has also warned that higher US tariffs would slow down the Indian export market. "Higher tariffs are likely to moderate export growth," Malhotra said in the monetary policy statement.

With the GST cuts announcement in effect, the RBI has raised the Gross Domestic Product (GDP) forecast for the current financial year to 6.8% from 6.5% projected earlier. The RBI has stated that it will continue to maintain a "neutral" stance on interest rates and has revised the headline inflation forecast for FY2026 downwards from 3.1% to 2.6%.

Daily digest market movers: US government shutdown weighs on US Dollar

• The US Dollar trades cautiously against its peers on the US government shutdown, as Democrats have not supported the short-term funding bill, which was expected to extend the shutdown deadline to November 21.
• At the time of writing, the US Dollar Index (DXY), which tracks the Greenback's value against six major currencies, trades mildly around 97.75.
• On Tuesday, US President Donald Trump said, while addressing reporters at the White House, "We'll probably have a shutdown." He also warned that Democrats would bear the consequences as he has the power to cut benefits favourable for them during the shutdown. However, Trump didn't specify any action he is considering now. "They're taking a risk by having a shutdown. We can do things during the shutdown that are irreversible, that are bad for them and irreversible," Trump said, Time Magazine reported.
• The partial shutdown of the US government could halt key economic releases, including the official employment data for September, which has been a key trigger to speculation for the Federal Reserve's (Fed) monetary policy outlook.
• With uncertainty over whether the US Labour and Commerce departments will release key labor market data this week, the significance of the ADP Employment Change data for September publishing at 12:15 GMT has increased. Economists expect the US private sector to have added a fresh 50K workers, marginally lower than 54K in August.
• Signs of a slowdown in the job market would boost market expectations for more interest rate cuts by the Fed. On the contrary, upbeat labor data would weaken the same. According to the CME FedWatch tool, there is a 94.6% chance that the Fed will cut interest rates again in the policy meeting later this month.

Technical Analysis: USD/INR holds key 20-day EMA

USD/INR falls to near 88.85 on Wednesday. However, the near-term trend of the pair remains bullish as the 20-day Exponential Moving Average (EMA) slopes higher around 88.50.

The 14-day Relative Strength Index (RSI) stays above 60.00, suggesting a strong bullish momentum.

Looking down, the 20-day EMA will act as key support for the major. On the upside, the round figure of 90.00 would be the key hurdle for the pair.