USDINR: Reserve Bank of India Unexpectedly Cuts Key Rate by 40bps to 4.0%

USDINR jumps after the Reserve Bank of India (RBI) unexpectedly cut its benchmark repurchase rate by 40 basis points to 4% while the reverse repo rate was also slashed to 3.35% in an emergency move that surprised markets. The rates now are at the lowest level since 2000. The central bank also announced the extension of the moratorium on loan repayments by another three months to August 31.

The RBI in this unscheduled meeting cut the rates in an attempt to stabilize the financial system and offset the economic fallout from the ongoing lockdown to contain the spread of the coronavirus outbreak. RBI sees that the impact is more severe than previously anticipated as has been compounded by supply disruptions and shrinking demand. The move could help the local banks to increase lending to battered businesses and increase investments. Also, depositors will move funds out of deposits in search for higher yields.

The RBI will continue with the accommodative stance aiming to achieve the medium-term inflation target of 4 per cent +/- 2 per cent and offset the impact of coronavirus on the economy while supporting economic growth.

RBI governor Shaktikanta Das said that GDP growth would remain in the negative territory in 2020-21, that would be the first contraction in the last four decades. Das is optimistic about a possible pick-up in growth in Q2 but added that everything was going to depend on how the COVID-19 situation plays out. In the Q2, Das said, the economy could get a boost from ideal conditions created by fiscal, monetary and administrative actions taken so far.

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USDINR Price Analysis

USDINR is 0.53% higher at 75.462 breaking above the 50-day moving average a move that might accelerate the upward move. The technical outlook is bullish now, and higher-level might be in the cards. Failure to close today above the 50-day moving average might trigger some profit-taking.  

On the upside, first resistance for USDINR pair stands at 75.486 today’s high. If the USDINR breaks above that level, the next hurdle stands at 75.818 the high from April 28 trading session. Next target to the upside will be high from April 24 resistance at 75.957. 

On the contrary, first support for the pair stands at 75.064 today’s low. Next support might provide the low from yesterday’s trading session at 74.850. A credible break below 74.850 might pave the way for a move down to 74.373 the low from May 15. 

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