Dubai: The Indian rupee is under pressure again, trading at 22.58 to one dirham, as the central bank cut interest rates by another 0.25%.
It was widely expected that the RBI will indeed go for a cut, its second since February. (India’s current base rate will now be 6%.)
Interest rate cuts have generally tended to drag the INR lower, say analysts.
“A RBI cut will further support the potential trend of INR depreciation,” said Krishnan Ramachandran, CEO of Barjeel Geojit Financial Services.
Which would mean a positive outcome for Indian expats in the UAE and Gulf. In recent days, the rupee had been firming up against the dirham/dollar, pushing its way to 23.2-23.3 levels. At these levels – or even a further lowering – would be seen as ideal for NRIs to be sending money home.
“The current 23.50 plus levels mean INR is showing signs of potentially going back to 23.80 levels, last seen early March,” said Neelesh Gopalan, Senior FX analyst at a Dubai fintech.
The lowest point ever for the INR was the 23.94 on February 10 this year.
What next for rupee?
“Following a depreciation of approximately 1.90%, the Rupee now trades at 86.64 against the dollar,” said Foram Chedda, Technical Analyst at ChartAnalytics.co.in
“This move confirms that the recent strength in the rupee was temporary. The broader bias continues to favor a weaker Rupee, particularly amid ongoing global trade tensions and currency market volatility.”
Indian stock markets are holding the line – for now
On the markets, the BSE and Nifty are in the red, but not by much in early trades. The BSE is down 0.35% and Nifty by 0.5%.
“It could have been a lot worse after President’s Trump’s statement that US imports of pharmaceuticals could be next on the tariff list,” said a market analyst. “But going by the trades so far on BSE, it’s not been much of a blip.”
That could change, of course. So far, Indian stocks have remained fairly resilient against the Trump tariff shocks, in large part because pharma exports to the US were not mentioned.
“The Indian rupee is backed by strong reserves, in excess of $650 billion,” said Amrita Farmahan, CEO, Ambit Global Private Client.
“The government has acted with prudence, bringing down the fiscal deficit in 20256 to 4.8% of GDP, and plans to further reduce it to 4.4% in fiscal year 2026.
“In addition, the central bank has pursued a policy of currency stability and has intervened at times to reduce the volatility of the INR.
It should be noted, though, that the INR has tracked recent weakness in the renminbi. It remains to be seen how the tariff situation evolves, and that could have an impact on all Asian currencies, particularly exporting countries.
“India remains fairly insulated in terms of US exports and any adjustments to the INR would primarily be driven by secondary effects and competitiveness response.”
Bank deposit rates
After the February RBI rate cut, Indian banks did not tamper with the rates on deposits offered to their customers, preferring to keep it intact ahead of the close of the financial year by March end. That should change after the latest rate trim.
Home loans
“Home loan borrowers may not see much meaningful or immediate interest rate relief,” said Anuj Puri, Chairman of Anarock Group.
“Banks have not transmitted earlier rate cuts to borrowers because of higher funding costs, pressure on net interest margins, higher NPAs, and a cautious lending climate.
“If banks do pass on the benefits of the last two rates cuts, it will be a boost to homebuyers, particularly for those eyeing affordable housing. Many first-time homebuyers who had been hesitating to take the plunge may make their move if home loan rates reduce.
“(Existing) home loan borrowers whose lenders don’t pass on the rate cut could consider negotiating a lower rate or a balance transfer. They should keep their expectations realistic as there may be only partial relief, if any. Any potential EMI reduction should be used to prepay home loans or invest for higher returns instead of on mere consumption.”
