Brown Brothers Harriman (BBH) analysts note that the Reserve Bank of India, after earlier cuts, kept the key interest rate at 5.25% and signaled the end of monetary policy easing, while maintaining a neutral stance. Despite swaps pricing in future increases, Governor Malhotra stressed that rates will be stable in the coming year. Analysts expect the recent US-India trade deal to aid USD/INR pare earlier gains due to trade tensions.
The neutral stance of the RBI weighs on the rupee
“The Reserve Bank of India (RBI) voted unanimously to keep policy rates unchanged at 5.25% after cuts of 125 basis points in 2025. Today’s policy decision was in line with expectations. Importantly, the RBI has signaled that it has completed monetary easing.”
“INR is underperforming across all EMFX funds, mainly because RBI Governor Sanjay Malhotra has relied on market expectations for interest rate hikes. Malhotra stressed that the bank’s neutral stance implies stable rates over the next 9-12 months, while adding that the real interest rate remains high.”
“Regardless, this week’s US-India trade deal should help USD/INR recover most of the gains that followed the peak of trade tensions in August, when the US imposed a 50% tariff on India.”
(This article was created with the aid of an artificial intelligence tool and has been reviewed by an editor.)
