Brown Brothers Harriman’s (BBH) Elias Haddad reports the Reserve Bank of India (RBI) kept its policy rate at 5.25% with a neutral stance, in line with most expectations. Indian Rupee (INR) outperformed after authorities unveiled measures to attract foreign capital and tax exemptions for investors. Haddad cautions that ongoing energy shocks mean these steps will likely only slow INR depreciation.

Capital inflow push versus energy shock

"The Reserve Bank of India (RBI) left the policy rate at 5.25% for a third consecutive meeting and maintained its neutral stance. 32 of the 38 analysts polled by Bloomberg expected no change, the rest had a 25bps hike penciled in."

"INR outperformed across the board because India rolled out a set of packages to draw in foreign capital. The RBI alongside the government announced today measures aimed at strengthening India’s balance of payments by attracting more capital flows."

"The RBI introduced five measures that make it easier for foreign investors to buy government bonds and stocks and encourage foreign currency deposits."

"In parallel, the government granted tax exemption to foreign institutional investors retroactively from April 1, 2026 on “any interest on government security, and any capital gains arising from the sale, exchange or transfer of such government security.”

"Nonetheless, until the energy shock fades, these steps to bolster capital inflows are more likely to slow INR depreciation than unwind its massive undervaluation. India is a net crude oil importer with around half of its oil imports passing through the Strait of Hormuz."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)