Rupee faces pressure amid rate cut, but imported inflation likely to stay contained: RBI MPC member Ram Singh

Rupee

The Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC) external member Ram Singh said Indian rupee could face additional depreciation pressure following a potential rate cut, though the impact on imported inflation is expected to be limited.

“A rate cut can add to the pressure on the INR. The depreciation is unlikely to cause imported inflation due to low oil and commodity prices,” Singh said in the RBI monetary policy minutes released today.

He added that the Real Effective Exchange Rate (REER) of the local currency has already seen a significant decline, primarily driven by foreign portfolio investment (FPI) outflows amid global financial market uncertainties and relatively less attractive price-earnings ratios for Indian equities.

“Despite these short-term pressures, India’s macroeconomic fundamentals remain robust,” Singh said.

“Factors such as the balance of payments (BOP), foreign exchange reserves, fiscal deficit, debt-to-GDP ratio, corporate and banking balance sheets, inflation, and growth dynamics are all healthy. This suggests that the current exchange rate pressures and FPI flows are likely to be self-limiting,” Singh added.

Singh also noted that the recent depreciation in the rupee is unlikely to stoke imported inflation. Crude oil prices, measured by international benchmark Brent (BZ=F), have fallen to some of the lowest levels in recent times. Additionally, the World Bank’s Commodity Price Forecast (CPF) projects moderation in most commodity prices through 2026.

“With low global commodity and oil prices, the rupee’s depreciation should not translate into significant imported inflation,” Singh added.

The currency has been under pressure in the last few weeks especially due to delay in the trade deal, which led to the currency hitting fresh record lows. On the other hand, the limited intervention by the RBI was also adding to the pain.

In last three months, the rupee has been trading in the range of 88.20-91.03 against the US dollar.

On December 19, Moneycontrol reported that Indian rupee staged a strong comeback, rising past the psychologically important 90-mark against the US dollar to settle at its highest level in over two weeks and outperformed peers.

Currency experts said the move is supported by the heavy intervention by the Reserve Bank of India (RBI) in last two days.

The domestic currency closed at 89.6525 against the US dollar, up from an opening level of 90.1500 and the previous close of 90.2513. This marks the rupee’s strongest finish since December 1, when it had closed at 89.5587.

According to Bloomberg data, the rupee appreciated 0.67 percent on a single day, emerging as the best-performing currency among Asian peers. Over the week, it gained 0.86 percent, and since the RBI began heavy interventions on December 16, the currency has strengthened by 1.54 percent.