Food Prices and Monetary Policy

The Indian Rupee is facing pressure against the US Dollar, largely because there’s been no announcement of a trade deal between the US and India. In October, India’s Consumer Price Index (CPI) growth fell to 0.25%. This was lower than the expected 0.48% and significantly down from 1.54% in September. The drop in food prices contributed to this unexpected slowdown in inflation. Economists now believe the Reserve Bank of India may further ease monetary policy, as it has already cut its Repo Rate by 100 basis points to 5.5% this year. Meanwhile, weak job trends in the US have raised hopes for a potential interest rate cut by the Federal Reserve. The chance of a rate cut in December has risen to 68%, up from 62.4% earlier this week, following disappointing employment data. The USD/INR exchange rate is moving upwards and is close to 88.80. The Rupee has been particularly weak against the Australian Dollar compared to other major currencies. Foreign Institutional Investors have sold Indian shares worth Rs. 803.22 crore, partly due to the lack of a trade deal announcement. Overall, the USD/INR is near a technical level that could push it above 89.00, bolstered by a positive market trend. Investors are watching various US economic data releases as Senate discussions on funding continue.

Impact of Foreign Outflows

India’s retail inflation for October 2025 came in at a surprisingly low 0.25%. This represents a sharp decline from 1.54% in September and is well below the Reserve Bank of India’s (RBI) 4% target. This indicates a shift from the tighter monetary policies seen in 2023 and 2024. The notably low inflation allows the central bank to consider more easing. The RBI has already reduced its key Repo Rate by 100 basis points in 2025. Given the latest inflation figures, there is a strong case for another cut at the upcoming policy meeting in early December. Lower interest rates generally make the Rupee less appealing to foreign investors, which could lead to more pressure on the currency in the upcoming weeks. On the US side, weak job data is increasing the likelihood of a Federal Reserve rate cut. Based on the CME FedWatch tool, the chance of a rate cut at the mid-December meeting has risen to 68%. While this can weaken the US Dollar, the current downward pressure on the Rupee from domestic issues is more significant at the moment. Adding to the Rupee’s challenges is the ongoing outflow of foreign capital from Indian stocks, mainly due to the absence of a finalized US-India trade deal. Foreign institutional investors have consistently sold, putting significant pressure on the currency. This trend is unlikely to reverse without a notable positive development regarding trade. For those trading derivatives, this outlook suggests a bullish approach on the USD/INR pair. Buying call options with strike prices near the 89.00 mark or the all-time high of 89.12 seems to be a prudent strategy. This allows traders to benefit from expected gains while managing their risks ahead of important central bank meetings in December. Create your live VT Markets account and start trading now.

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