USD to INR analysis ahead of the RBI decision

The USD/INR price has been in a tight range in the past few days as investors target the upcoming Reserve Bank of India (RBI) interest rate decision. The USD to INR pair is trading at 77.61, which is a few points below the all-time high of 77.78.

RBI interest rate preview

The RBI started its monthly meeting on Monday ahead of the upcoming release of its decision that will come out on Wednesday.

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Economists expect that the RBI will hike interest rates for the second straight meeting as it continues battling inflation. The base case is that the bank will increase by 0.40% and push the base interest rate to 4.80%. 

Some analysts expect that the bank will make it a full 0.50% hike and then move forward with a 0.25% increase in August. 

The decision comes at a time when India is seeing high inflation, helped by the relatively high oil and natural gas prices. In a report, analysts at Bank of America said that the country’s inflation will average 6.8% in 2022 and 6.5% in 2023. In a note, an analyst at Kotak Mahindra said:

“With the US not yet relenting on moderating pace and quantum of rate hikes, and inflation not showing immediate signs of abating, it seems yet another slam dunk decision to hike rates in the upcoming policy,”

RBI is not the only central bank hiking interest rates this year. The Federal Reserve has already hiked interest rates by 0.75% this year and analysts believe that it will deliver more hikes this year. The European Central Bank is expected to signal that it will start hiking rates in July. 

In the emerging markets, central banks like South Africa Reserve Bank (SARB) and Banxico have already started hiking rates.

USD/INR forecast

The USD to INR pair has been in a tight range in the past few weeks. It is trading at 77.60, where it has been in the past few years. On the four-hour chart, the pair has formed a symmetrical triangle pattern that is shown in black. It is also slightly above the 25-day and 50-day moving averages while the MACD has moved slightly above the neutral level.

Therefore, the USD/INR pair will likely have a bullish breakout after the RBI interest rate decision as bulls target the key resistance at 78.

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