USD/INR: Here’s why the Indian rupee crashed after the RBI decision

Written by: Crispus Nyaga
April 7, 2021
  • The USD/INR price surged after the latest RBI rate decision.
  • The bank left interest rates unchanged at 4% as expected.
  • The bank also took the first steps into quantitative easing.

The USD/INR price surged to the highest level since November last year after the Reserve Bank of India (RBI) interest rate decision. It rose to 74.57, which was more than 3% above the lowest level this week.

USD/INR
USD/INR price action

RBI interest rate decision

The USD/INR rose after the relatively dovish RBA interest rate decision. The bank left interest rates at 4%, where they have been in the past few months. The rate has remained at this level in the past few months. It was also in line with what analysts were expecting. 

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In addition, the bank signalled that it will introduce quantitative easing in a bid to support the ailing economy. In it, the RBI said that it would buy government bonds worth about $14 billion. In response, Indian stocks and government bonds rallied.

The Indian economy is struggling as the number of coronavirus cases keeps rising in major cities like New Delhi and Mumbai. At the same time, the government has struggled to deliver the vaccination shots to the 1.3 billion people. Indeed, the recent numbers show that the government has vaccinated just 4% of the population. In contrast, the UK has already vaccinated more than 47% people. 

Therefore, by delivering a dovish statement, analysts no longer feel that the RBI will tighten like other emerging market economies have done. However, that tone could lead to higher inflation. Indeed, recent data showed that the headline consumer price index rose to 5.03% in February. This is within the bank’s target of between 2% and 6% but it could keep rising as fuel prices soar.

The USD/INR rose in a day that the US dollar is under pressure. The dollar index has declined by 0.10% as US bond yields cool. Later today, it will react to the latest FOMC minutes that will come out later today.

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USD/INR technical outlook

USD/INR
USD/INR price action

The four-hour chart shows that the Indian rupee declined sharply today. It rose to 74.57, and crossed the important resistance level at 74.06, which was the highest level on March 1. It also moved above the green bullish pennant pattern and the moving averages. At the same time, the Average True Range (ATR) has risen, in a sign that volatility has jumped. Therefore, while the overall trend for the USD/INR is bullish, there is a possibility of a pullback on profit-taking.