Reserve Bank Of India’s Economic Measures
The Reserve Bank of India maintained a Repo Rate of 5.5% and increased the GDP forecast to 6.8% amidst recent GST cuts. The Rupee was weakest against the Swiss Franc among major currencies.
Meanwhile, US trade tensions have led to dovish bets on the Federal Reserve amid a slowing job market and government shutdown. The US Dollar Index hovers around 97.85, with market volatility due to political unrest.
There is anticipation for further Federal Reserve rate cuts, following recent labour market data showing job losses. Technical analysis indicates bullish momentum for USD/INR, with the pair trading above the 20-day EMA at 88.55.
If the pair breaks above 89.12, it could see a rise toward 90.00, while support lies near 88.57.
We see the Indian Rupee continuing its weak trend against the US dollar, with the USD/INR pair testing all-time highs. The ongoing trade friction, marked by steep US tariffs, and significant capital outflows from foreign investors are the main drivers behind this pressure. Traders should look at this as a strong signal that the upward momentum in USD/INR will persist in the coming weeks.
Foreign Institutional Investor Concerns
The recent Foreign Institutional Investor (FII) outflow of nearly Rs 1.3 lakh crore is a major concern, and we see this trend continuing. To put this in perspective, this quarterly outflow is already surpassing the sharp pullouts we witnessed back in the first half of 2022. Exchange data from the National Securities Depository Limited (NSDL) for the first few days of October 2025 confirms no reversal, showing that overseas funds are still reducing their exposure to India.
The Reserve Bank of India’s decision to hold the repo rate at 5.5% signals that they are prioritizing domestic growth over an aggressive defense of the currency. With the US Federal Reserve expected to cut rates, this inaction narrows the interest rate differential, but not enough to attract significant inflows. This policy stance suggests the RBI may tolerate further gradual depreciation of the Rupee.
Given the strong upward momentum and supportive technical indicators like the RSI staying above 60, buying USD/INR call options seems like a sensible strategy. We should look at contracts with strike prices just above the current high of 89.12, perhaps targeting the psychological 90.00 level. This approach allows us to profit from the expected rise while keeping our potential downside limited to the premium paid.
While the case for a weaker Rupee is strong, we must watch the US government shutdown’s effect on the dollar. Historically, as seen in the shutdowns of 2013 and 2018, the dollar often sees short-term weakness due to the uncertainty and delayed economic data. If this shutdown drags on, it could temporarily slow the USD/INR’s ascent, offering better entry points for new long positions.
For businesses with dollar-denominated costs, this is a critical time to use forward contracts or futures to hedge against further Rupee depreciation. The currency heatmap also shows the Rupee is extremely weak against the Swiss Franc, suggesting short positions on INR/CHF could be an alternative trade. This allows diversification away from the direct volatility of the US dollar, which faces its own domestic issues.
