USD/INR: Analysts at Crédit Agricole expect the Reserve Bank of India (RBI) to hike interest rates by 25 basis points on Wednesday, taking it to 5.50%. However, the bank warns that this decision will only help stabilize inflation and will not lead to a significant strengthening of the rupee by the end of the year.
Forecast: 96 by the end of the year
Despite the active actions of the regulator, Crédit Agricole maintains its forecast for the dollar-rupee exchange rate (USD/INR) at 96.00 in the second half of 2026.
- Current rate:About 96.16 (as of the evening of October 2).
- Dynamics:The rupee weakened by 0.86% in September, although it posted a slight gain of 0.07% on Friday.
- Year to date:The pair is up 6.87% and the bank's current forecast is very close to these levels.
Why rates aren't saving the rupee
David Forrester from Crédit Agricole explains that raising rates is a forced measure to combat inflation, and not a tool to strengthen the currency.
- Inflation:In August, the figure rose to 4.82% (from 4.45% in July), and food inflation reached 5.95%.
- Reasons:Expensive oil (above $100), depreciation of rupee (import effect) and weak monsoons threatening crops.
- Quote:“The Reserve Bank of India is raising rates not to support the Indian rupee, but rather to offset the impact of a weak currency on rising inflation.”
Neutral position and path to 5.75%
The bank does not expect an aggressive tightening cycle:
- October:+25 bps up to 5.50%.
- December:5.50% (forecast adjusted, previously expected increase in september).
- March 2027:5.75%.
The RBI maintains a neutral stance, keeping the rate near the upper limit of the neutral range to be able to move to a restrictive policy if necessary.
Outcome:Wednesday's rate hike is already priced in and is unlikely to trigger a rally in the rupee. Crédit Agricole's forecast of 96.00 by the end of the year remains valid as pressure from expensive oil and India's weak trade balance outweigh the effect of the regulator's actions.