Societe Generale analysts highlight that the Indian Rupee (INR) recently experienced relief following aggressive intervention by the Reserve Bank of India (RBI), which aimed to keep the currency below the 95.00 level [1]. The focus now shifts to the upcoming policy decision on Friday, where a 25 basis point rate hike is seen as possible, especially in light of recent regional tightening moves such as a rate hike in Indonesia and a hawkish shift in South Korea [1]. Despite these regional developments, sources suggest that the RBI prefers to use foreign exchange operations and measures to attract dollar inflows, rather than raising interest rates, to support the INR and mitigate the impact of imported energy inflation [1].
Additionally, the RBI transferred a record INR2.87 trillion ($30.1 billion) dividend to the government for 2026, but this move was largely ignored by bond markets, with the 10-year Indian Government Bond yield remaining around 7.00% [1]. The upcoming 1Q GDP data, also due on Friday, is forecast to moderate to 6.8% year-on-year from 7.8% in the previous quarter [1].
The market is closely watching the RBI's policy choice between further rate hikes and continued FX interventions. The recent run of record lows for the INR and tightening by regional peers have lowered the bar for the RBI to consider tightening monetary policy, but the central bank appears to favor alternative measures to bolster the currency [1].
CONCLUSION
The RBI's recent intervention has stabilized the rupee, but uncertainty remains over its next policy move. While a rate hike is possible, the central bank appears to prefer FX operations and inflow measures to support the currency. Markets are awaiting Friday's policy decision and GDP data for further direction.