The Reserve Bank of India (RBI) cut its policy rate by 25bps to 5.25%, supporting economic growth amid a benign inflation outlook. USD/INR hovers just below record highs as markets price in a floor for rates, with potential future hikes over the next two years, BBH FX analysts report.

RBI lowers policy rate to 5.25% amid benign inflation

"USD/INR firmed back up to 90.0000, a touch below yesterday’s record high of 90.4248. The Reserve Bank of India (RBI) delivered on expectations and cut the policy rate 25bps cut to 5.25%. The RBI monetary policy committee unanimously backed the cut, stating 'the benign inflation outlook continues to provide the policy space to support the growth momentum'."

"The swaps curve shows the policy rate has reached a floor at 5.25%, with rate hikes priced in over the next two years. The risk is the RBI eases again which is a drag for INR. India core inflation excluding gold is near the lower-end the RBI’s 2%-6% target range and tariff related developments are likely to decelerate growth in the coming quarters."