USD/INR forecast: How low can the Indian rupee get?

The Indian rupee rose modestly on Monday as investors rushed to buy the dip, hoping that the Reserve Bank of India (RBI) would intervene. The USD/INR exchange rate dropped to a low of 89.15, down from last week’s high of 89.70.

Why the Indian rupee is plunging 

The Indian rupee has been in a strong downward trend this year, making it one of the worst-performing currencies in the Asian region.

This plunge happened as a trade deal between India and the United States remained elusive despite some recent assurances from the two sides.

As a result, goods from India to the United are being charged a 50% tariff, part of which is because of the country's imports of Russian oil.

Recently, India has made some commitments to stop purchasing Russian oil. In a statement last week, Mukesh Ambani’s Reliance Industries said that it had stopped purchasing this oil in a major victory for Donald Trump.

On the positive side, Trump is pushing Ukraine to accept a trade deal that many analysts believe gives Russia everything it has been asking for.  One part of the deal is that the sanctions placed on Russia will start to end, which will likely allow Reliance to start buying Russian crude oil again.

The Indian rupee has also slumped after Donald Trump changed the H1-B visa program by adding the fees to $100,000, an amount that many companies will be unwilling to  pay. While the H1-B visa rule applies to all countries, the reality is that India is the most exposed as it has a 70% market share in the industry.

RBI expected to cut rates in December

The USD/INR exchange rate has also jumped because of the actions of India’s central bank, which has been cutting interest rates under Sajay Malhatara. The bank slashed rates by 25 basis points in February, followed by another 50 basis points in June. 

Analysts now expect that the bank will cut rates by another 0.25% forthe  December meeting, bringing the benchmark rate to 5.25%. 

The bank’s rate cuts are supported by the fact that India’s inflation has remained at a record low of 0.25%, down from the year-to-date high of 4.3%. The inflation has plunged because of the falling food prices, with vegetables and onions plunging.

The bank hopes that more cuts will help to supercharge the economy, which is still expected to be the fastest-growing one in the emerging markets. The GDP is expected to grow by between 6.2% and 6.3% this year and 6.3% in 2026, while the RBI sees the growth rising by 6.8%, helped by local demand.

Analysts and traders are now looking forward to the Reserve Bank of India, which may intervene in the forex market. 

According to Bloomberg, the bank has already pumped $10 billion in the past few months to support the rupee. In a statement, one analyst warned that the rupee freefall may continue if the RBI stays on the sidelines.

USD/INR technical analysis 

The USD/INR exchange rate has been in a strong uptrend in the past few months, moving from a low of 93.76 in May to a high of 89.67 on Friday. It pulled back a bit on Monday, moving to a low of 89.17 as hopes of an intervention rose.

The pair remains above the important resistance level at 88.85, its highest level in October this year.

It has also moved above the 50-day and 100-day Exponential Moving Averages (EMA). The pair is also above the Supertrend and the Ichimoku cloud indicators, a sign that bulls are in control.

Therefore, the most likely scenario is where the USD/INR exchange rate pulls back and retests the support at 88.84 and then resumes the uptrend towards the barrier at 90.