Commerzbank analysts report that the Indian Rupee (INR) has strengthened, with USD/INR easing 0.2% to 95.64 yesterday, following a softer dollar and positive domestic economic data [1]. India's June industrial production surprised to the upside, rising 7.4% year-over-year, surpassing the Bloomberg consensus of 6.0% and up from 5.0% in May. This marks the strongest reading since July 2024 [1]. Despite this robust performance, forward-looking indicators suggest that momentum may moderate in the coming months [1].
Inflation risks remain tilted to the upside due to higher global commodity prices and a weaker monsoon season. However, the June Consumer Price Index (CPI) rose 4.4% year-over-year, staying within the Reserve Bank of India's (RBI) 2-6% target range [1]. As a result, Commerzbank expects the RBI to keep the benchmark repurchase rate unchanged at 5.25% at its next meeting on August 5 [1].
In the foreign exchange market, the USD/INR pair has eased back from the 96.80 level over the past week. RBI's measures to attract inflows and limits on gold imports have provided some support for the INR. Nevertheless, further gains for the INR are likely to be capped by ongoing dollar demand from oil importers, especially amid elevated global crude prices [1].
CONCLUSION
The Indian Rupee has benefited from strong industrial production and contained inflation, prompting expectations that the RBI will maintain its current policy rate. While RBI measures and a softer dollar have supported the INR, persistent dollar demand from oil importers and commodity price risks may limit further appreciation.