FX.co ★ Rupee Slides as RBI Cuts Rates

The Indian rupee depreciated to approximately 89.9 per USD, hovering near historic lows following the Reserve Bank of India's decision to cut interest rates at its December meeting. The central bank reduced the repo rate by 25 basis points to 5.25%, marking its first adjustment in half a year. This decision came in response to record-low inflation levels and stable economic growth, conditions described by policymakers as a "Goldilocks" scenario, enabling support for economic activity. This year, the rupee has depreciated by close to 5%, making it the weakest performer in Asia. This decline is driven by subdued trade flows, capital outflows, and significant U.S. tariffs that have pressured exports and pushed the currency close to the 90 per USD threshold. Although most economists anticipated the rate cut, there was speculation the RBI might refrain from cutting rates further due to the rupee's depreciation. However, expectations of prospective easing measures by the Federal Reserve could help maintain the rate differential and mitigate additional declines. The Reserve Bank maintained a neutral stance, suggesting this might be the last rate cut for the time being, with any future support likely to come from liquidity operations.