MUFG Bank expects the Reserve Bank of India (RBI) to extend its pause on interest rate hikes, keeping the benchmark repo rate unchanged at 6.5% for the foreseeable future. The bank’s research team says the central bank is prioritizing economic growth over inflation containment, a stance that should keep the Indian rupee relatively stable and could support modest appreciation if global risk sentiment improves. Core inflation has shown signs of cooling, but the RBI remains watchful over food prices and possible supply shocks.
Societe Generale separately highlighted that active RBI intervention in foreign exchange markets is cushioning the rupee against a wider trade deficit. Normally, a widening trade gap increases demand for foreign currencies and weakens the rupee, but the central bank’s dollar-selling and liquidity management are helping to prevent sharper depreciation and maintain orderly market conditions.
MUFG expects a shift toward rate cuts only in late 2025 or early 2026, depending on inflation trends and global conditions. The rupee has been trading in a narrow range against the U.S. dollar, supported by foreign portfolio inflows and a robust domestic equity market. Investors are likely to monitor RBI monetary policy committee meetings in June and August 2025, along with U.S. inflation data and Federal Reserve decisions, for further cues on the rupee and broader emerging market sentiment.
