USD/INR: RBI Shakes Up Markets with Jumbo Rate Cut on June 6, 2025

The Reserve Bank of India made some big announcements on Friday. The RBI has significantly cut interest rates to boost the economy. This move has caused the Indian Rupee (INR) to move against the US Dollar (USD), settling near 85.70.

What Happened at RBI's Recent Meeting?

In a surprising move, the RBI cut its key interest rate, the Repo Rate, by a larger-than-usual 50 basis points (0.50%) to 5.5%. This is the third time in a row the RBI has cut rates, but this reduction was bigger than expected. Only one policymaker voted for a smaller 25 basis point cut.

Even more surprisingly, the RBI also reduced the Cash Reserve Ratio (CRR) by 100 basis points (1%) to 3%. This means banks will have an extra ₹2.5 lakh crore to lend out, which should further encourage borrowing and economic activity.

RBI Governor Sanjay Malhotra explained that this "jumbo" rate cut was necessary to kickstart economic growth. However, the RBI has also changed its policy stance from "accommodative" to "neutral." This signals that there might be "limited scope" for further rate cuts in the future, meaning upcoming decisions could go either way.

RBI’s Outlook on Inflation

Despite the rate cuts, the RBI believes it is winning the fight against inflation, lowering its inflation forecast for the current financial year to 3.7% from 4.0%. However, Governor Malhotra noted that the "last mile of inflation" is proving a bit "stickier." The central bank maintained its economic growth forecast at 6.5% for the current financial year.

Global Influences: US Jobs Data in Focus

The movement of the USD/INR spot rate isn't just about the RBI; the US Dollar also plays a big role. The US jobs data, specifically the Nonfarm Payrolls (NFP) report, could play a big role in influencing the Federal Reserve's (Fed) future interest rate decisions.

Recent disappointing US economic data has slightly increased the chances of the Fed cutting interest rates in July. However, some news reports have highlighted that Fed officials are cautious of tariffs that could push prices upwards and keep interest rates higher for longer.

What Does This Mean for the Rupee?

The RBI's large rate cut means that India's interest rates are now more different from those in other major economies. This "policy divergence" could put the Indian Rupee under pressure in the near future.

Read more: ITR Filing 2025: Your Simple Guide to Responding to Income Tax Notices

Conclusion

The RBI's significant rate cuts aim to boost India's economic growth by making borrowing cheaper and increasing money supply. While this is good news for the economy, the shift to a "neutral" policy stance and the widening gap with global interest rates mean that the Indian Rupee's performance against the US Dollar will be closely watched, especially with important US economic data on the horizon.

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