Food Prices And Monetary Policy
The Indian Rupee is under pressure against the US Dollar due to the lack of a US-India trade deal announcement. India’s Consumer Price Index (CPI) growth decreased to 0.25% in October, compared to expectations of 0.48% and a September rate of 1.54%.
Food prices dropped, leading to the higher-than-expected slowdown in inflation. Economists anticipate further monetary policy easing by the Reserve Bank of India, which this year reduced its Repo Rate by 100 basis points to 5.5%.
On the other hand, weak US job trends have led to speculation of a potential Federal Reserve interest rate cut. The probability of a rate cut in December increased to 68% from 62.4% earlier in the week, following soft employment data.
The USD/INR pair is trending upwards, reaching near 88.80. The Rupee was weakest against the Australian Dollar among major currencies. Foreign Institutional Investors sold Indian shares worth Rs. 803.22 crore, linked to the absence of a trade deal announcement.
Overall, the USD/INR is near a technical high to surpass 89.00, supported by a bullish pattern. Market focus is on various US economic releases, with Senate advances in funding under discussion.
Impact Of Foreign Outflows
With India’s retail inflation in October 2025 coming in at a surprisingly low 0.25%, we see a clear path for the Indian Rupee to weaken further. This figure is a sharp drop from the 1.54% seen in September and is significantly below the Reserve Bank of India’s (RBI) 4% target, which was a key focus throughout the tighter policy environment we saw back in 2023 and 2024. The extremely soft inflation print gives the central bank a green light for more monetary easing.
The RBI has already cut its key Repo Rate by 100 basis points during 2025, and this latest inflation data builds a strong case for another cut at the next policy meeting in early December. This expectation of lower interest rates makes the Rupee less attractive for foreign capital. Therefore, we should anticipate more pressure on the currency in the coming weeks.
On the other side of the pair, we see weakening US job data increasing the chances of a Federal Reserve rate cut. According to the CME FedWatch tool, the probability of a cut at the mid-December meeting has now climbed to 68%. While this would typically weaken the US Dollar, the downward pressure on the Rupee from domestic factors appears to be the more dominant force for now.
Adding to the Rupee’s weakness is the continued outflow of foreign funds from Indian stocks, which is largely due to the lack of a finalized US-India trade deal. Foreign institutional investors have been consistent net sellers, putting direct selling pressure on the currency. This situation is unlikely to reverse without a major positive announcement on the trade front.
For derivative traders, this outlook suggests a bullish stance on the USD/INR pair. We believe purchasing call options with strike prices approaching the 89.00 level or the all-time high of 89.12 is a logical strategy. This allows for participation in the expected upside while defining risk ahead of key central bank meetings in December.
