Indian Rupee Choppy vs Pound as RBI Cuts Interest Rates

indian rupee exchange rate 2

The Reserve Bank of India has cut interest rates by 0.25% at its rate meeting on Wednesday, as widely expected.

The cut leaves the benchmark interest rate at 6.00% percent.

It is the first rate cut so far this year, bringing borrowing cost to the lowest since 2010 amid a sharp slowdown in inflation.

India's Rupee weakened temporarily following the news, spiking up to 84.60 from 84.40, as lower interest rates generally mean a weaker currency as they reduce inflows from investors seeking to park their money where they can earn the highest return.

The recent sharp fall in inflation was seen as a major reason for the move.

The hindustantimes online noted how inflation had “consistently fallen, registering a more than five-year low in June. With the latest reading at 1.54%, the retail inflation is below the MPC’s target range of 2-6%.”

Growth has also slowed to 6.1% in March from over 7.0% in 2016 when it topped world rankings – lower rates, it is thought, will help boost growth by reducing loan repayments for both companies and individuals.

However, the news website also noted that there were signs inflation was set to pick up during the summer, with food inflation rising to between 3.5-4.5% between march and October.

The RBI cut supports the technical outlook which suggests the Rupee could weaken further versus the Pound, following a break above an important trend-line.
The break above the trend-line was a major event for the pair and signalled a probable change of trend. 
Although the pair pulled-back to the trend-line immediately after the break, in what is called a ‘throwback move’, it soon recovered and started moving higher again, as predicted in our previous tech forecast.
The young bull trend is now expected to continue higher, first to the previous target at 85.000 and then to 86.000 afterwards.
A break above the 84.90 highs would initially lead to a move up to 85.000.
A break then above the 85.050 level would probably confirm a continuation up to the next target at 86.000.