The Indian Rupee outperformed most Asian currencies on Tuesday, strengthening during regional trading hours as investors positioned themselves ahead of India’s May Consumer Price Index (CPI) release, scheduled for Thursday.
Markets are watching closely as the upcoming CPI data is expected to show a modest year-on-year rise of 3%, a slowdown from April’s 3.16%. A softer inflation reading could reinforce expectations that the Reserve Bank of India (RBI) may consider further rate cuts, despite signaling limited room for additional easing during its latest policy review.
Last Friday, the RBI shifted its monetary policy stance from “accommodative” to “neutral” while emphasizing its pro-growth approach. In a bold move, the central bank cut the benchmark repo rate by 50 basis points to 5.5% and lowered the Cash Reserve Ratio (CRR) by 100 basis points to 3%, effectively front-loading monetary stimulus in a bid to support economic expansion.
In addition, the RBI announced it will end its daily variable rate repo (VRR) operations starting Wednesday. The liquidity facility, launched on January 16, was aimed at easing funding stress in the productive sectors amid tight market liquidity. The decision to conclude the VRR auctions signals improving liquidity conditions, aligning with the RBI’s broader strategy to normalize policy tools gradually.
The Indian Rupee’s gains reflect investor confidence in the central bank’s proactive measures and a stable macroeconomic backdrop, as markets look ahead to both domestic inflation data and global cues for further direction.
