USD/INR forms a mildly bearish pattern after the RBI decision

The USD/INR exchange rate pulled back on Wednesday after the latest interest rate decision by the Reserve Bank of India (RBI). It also retreated following the relatively hawkish statement by Fed officials, including Jerome Powell, Neel Kashkari, and Raphael Bostic. It pulled back to 82.67, which was a few points below this week’s high of 82.86. 

RBI interest rate decision

The RBI continued its interest rate hikes on Wednesday as it battles the relatively elevated inflation in India. It hiked the main interest rate by 0.25% as was widely expected, bringing the main interest rate to 6.50%. This was the sixth straight interest rate increase in India, bringing the total increases to 225 basis points.

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The RBI rate hike comes at a time when India’s inflation has moved down modestly, helped by low energy prices. However, the closely watched core inflation figure remained above the upper 6% of the RBI’s range. 

However, unlike other central banks, the RBI is not under a lot of pressure to continue hiking interest rates. Besides, inflation has not been a major issue for the Indian economy like in other countries. India benefited from the war in Ukraine by buying Russian oil at a bargain. Still, the RBI expects that inflation will remain above 4% for a while. 

The USD/INR price also reacted to the first statement by Jerome Powell after the strong US jobs numbers, as we wrote here. In a statement, Powell said that the tighter labor market means that the Fed will need to maintain a hawkish tone in its battle against inflation. 

The same view was outlined by other Fed officials, including Neel Kashkari and Raphael Bostic who believes that a tighter monetary policy is needed. Therefore, analysts believe that the Fed will likely maintain interest rates at an elevated level for a while.

USD/INR forecast

The USD to INR forex exchange rate has been in a strong bullish trend in the past few weeks. This recovery started when the pair plunged to a low of 80.83 on January 3. It rose to a high of 82.85, the highest point since January 4. Along the way, the pair has moved above the 25-day and 50-day moving averages and is approaching the key resistance level at 82.95, the highest point in January.

It seems like it has formed a double-top pattern. Therefore, the pair will likely retreat in the coming days, with the next key level to watch being at 82.29 (Feb 3 high). A drop below that level will push the pair to about 81.5.

The alternative scenario is where the pair continues its bullish trend. This view will only be confirmed if it rises above 92.95. It is also a possibility since the pair seems to be forming a cup and handle pattern.