USD/INR forecast ahead of the RBI interest rate decision

The USD/INR exchange rate remained in a tight range on Wednesday as traders focused on the upcoming Reserve Bank of India (RBI) decision. The pair was trading at the psychologically important point at 83.0, a few points lower than the year-to-date high of 83.46.

RBI interest rate preview

The Indian central bank will conclude its meeting and deliver its first interest rate decision of the year on Thursday. As most central banks have done so far, economists expect the RBI will leave interest rates unchanged at 6.50%. It has maintained the status quo in the past six meetings straight.

Before pausing, the RBI hiked interest rates several times from a low of 4.0% in a bid to lower inflation. The bank has somewhat achieved this goal, with inflation falling from the 2022 high of 7.79% to 5.69%. It has remained inside its comfortable band of between 4% and 6% in the past few months.

The decision comes at a time when the Indian economy is doing well. The closely-watched Nifty 50 and BSE Sensex indices have jumped to their record highs. Higher stock prices lead to more investor and corporate confidence, which has a positive impact on the economy.

Meanwhile, expectations are that India will be the best-performing economy in the world. In a recent report, the OECD estimated that India will grow by 6.2% in 2024 after expanding by 6.7% in 2023. This growth will be two times the world average and higher than China’s 4.7%.

Therefore, analysts expect that the RBI will point to a potential rate cut in the first half of the year to help supercharge the economy.

This decision comes at a time when the Fed has embraced a moderately hawkish tone. In its decision last week, the Fed hinted that interest rates will remain intact for a while since the economy is doing well.

So, what next for the USD/INR?

USD/INR chart by TradingView

A simple look at the USD to INR chart shows that the pair found a strong resistance at 83.46. It has failed to cross that barrier several times since 2023. Recently, it has pulled back slightly and also found a barrier at 83.0. This level coincides with the ascending trendline shown in green.

This price action is a sign that it has formed an ascending triangle pattern, which is usually a bullish sign. The percentage price oscillator has remained at the zero line. Therefore, the outlook for the pair is neutral since I don’t expect the RBI to surprise the market. This means that it will remain at this level for a while. A bullish breakout will be confirmed if it moves above the resistance at 83.46.