USD/INR likely to ease further on pullback in oil prices, good support seen above 73.00 level: Commerzbank

The USD/INR currency pair is expected to ease further but good support is seen above the 73.00 level, following any added pullback in oil prices occur, according to the latest research report from Commerzbank.

The minutes of the October policy meeting showed that policy makers remained steadfast on controlling inflation expectations and not let it get out of hand. The Reserve Bank of India (RBI) surprised by leaving rates unchanged at 6.5 percent in October.

However, all five of the six members who voted for a pause emphasized that this was out of caution rather than a change in their policy bias. It seems the main reason for the pause was to allow the impact of the previous two hikes work through the economy. The committee remains vigilant on containing inflationary expectations and is not letting its guard down.

This was highlighted by the shift in the policy bias to “calibrated tightening” from neutral previously which was supported by five out of the six members. As such, the pause in October should be seen as a short interlude.

"We still look for another 25bp hike to 6.75 percent in December. However, given the favourable dip in core inflation in September to 5.8 percent y/y after averaging 6.2 percent in the previous four months, RBI may also keep its options open by pausing for another meeting," the report added.

Governor Patel noted this by stating that a “calibrated tightening” bias does not mean they are obliged to hike at every meeting. The clear picture though is that further hikes are in store in 2019. USD/INR has eased back from the recent high of 74.50 and stabilized around 73.50, helped by lower oil prices.