Indian Rupee: RBI tightening fails to halt INR slide – BBH

Brown Brothers Harriman’s (BBH) Elias Haddad notes that the Reserve Bank of India’s (RBI) 25 bps rate hike to 5.50% failed to support the Indian Rupee. The shift to a “calibrated tightening” stance and a 4-2 split on the policy stance point to limited appetite for sustained aggressive tightening, although positive real rates and RBI FX intervention should help contain USD/INR overshoots.

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"The Reserve Bank of India (RBI) rate hike failed to support INR as its policy guidance suggested limited appetite for aggressive tightening. Still, positive real rates and RBI FX intervention should help contain USD/INR overshoots."

"As expected, RBI decided unanimously to raise the policy rate 25bps to 5.50%, after keeping rates on hold at 5.25% the last four meetings. The RBI changed its policy stance from neutral to “calibrated tightening”."

"But the hawkish signal was diluted because “calibrated tightening” leaves room for either a hike or a pause while the 4-2 vote split - two members (Kumar and Singh) preferred to retain a neutral stance – signals limited consensus for sustained tightening."