Brown Brothers Harriman (BBH) analysts note the Reserve Bank of India kept its policy rate at 5.25% after earlier cuts and signaled an end to easing while retaining a neutral stance. Despite swaps pricing in future hikes, Governor Malhotra stressed steady rates over the next year. Analysts expect the recent US-India trade deal to help USD/INR retrace prior trade-tension gains.

Neutral RBI stance weighs on Rupee

"The Reserve Bank of India (RBI) voted unanimously to keep the policy rate unchanged at 5.25% following 125bps of cuts in 2025. Today’s policy decision was in line with expectations. Importantly, the RBI signaled that it’s done easing."

"INR is underperforming all EMFX largely because RBI Governor Sanjay Malhotra leaned against market expectations for rate hikes. Malhotra stressed that the bank’s neutral stance implies steady rates in the next 9 to 12 months while adding that the real rate of interest is still high."

"Regardless, the US-India trade deal struck this week should help USD/INR retrace most of the rally that followed the August peak in trade tensions - when the US slapped 50% duties on India."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)