Indian rupee firms up, then drops against dirham as RBI cuts interest rate

Dubai: The India rupee has firmed up against the dirham after the country's central bank cut interest rates for the first time in nearly 5 years.

The rupee is trading at 23.78 to the dirham after closing at 23.84 last evening. The INR had been under extreme pressure since November and which accelerated in recent days. It had seen the Indian currency touch multiple fresh lows during the period.

The 23.84 (or 87.57) is the lowest level to date for the INR.

It's still too early to say whether today's partial firming up signals a proper change in direction or just a temporary halt to the slide.

In fact, minutes after the RBI announcement, the rupee had dropped back to 23.8 against the dirham, with markets responding tepidly to the central bank move.

"The current INR-AED levels are still in favourable territory for NRIs," said Neelesh Gopalan, senior FX analyst based in Dubai. "Anything at 23.6/7 definitely is for UAE's Indian expats.

"But India's stock markets don't seem too excited about the rate cut."

Markets were expecting the RBI – under new Governor In fact, minutes after the RBI announcement, the rupee had dropped back to 23.8 against the dirham, with markets responding tepidly to the central bank move.

"The current INR-AED levels are still in favourable territory for NRIs," said Neelesh Gopalan, senior FX analyst based in Dubai. "Anything at 23.6/7 definitely is for UAE's Indian expats.

"But India's stock markets don't seem too excited about the rate cut."

Markets were expecting the RBI – under new Governor Sanjay Malhotra – to finally effect the rate cuts after a succession of increases and then holding the rate steady at 6.5% for some time. – to finally effect the rate cuts after a succession of increases and then holding the rate steady at 6.5% for some time.

The RBI kept rates at these highs to counter sticky inflation, and which had been hard on consumer savings and investments. India's GDP growth too had slowed down in recent months, while inflation continues at 5% plus.

"Going by Governor Sanjay Malhotra’s first policy, the RBI has adopted a more flexible approach, allowing the rupee to depreciate largely in line with global trends except for a few interventions that were seen over the past few days," said Foram Chheda, Technical Research Analyst.

"RBI has indicated that it would be balancing its role — intervening selectively to prevent disorderly moves while letting market forces largely dictate the rupee’s trajectory.

"This signals a shift toward a more pragmatic approach to currency management, aligning with global macroeconomic conditions."

As for Indian residents, the rate cut is the second bit of good news to come their way since February 1, when Finance Minister announced the budget for 2025-26 and effected major tax reforms. It meant that there will be no income tax on individuals for up to Rs1.2 million a year.

Now, with the rate cut, it sets up Indian consumers to spend more - but, hopefully, with some easing on the inflation side.

The Sensex was flat at 11:15am India time. "The equity markets have reacted with mild negativity to the RBI’s policy announcement, despite the 25 basis point repo rate cut to 6.25%," said Milan Vaishnav, founder of ChartWizard.ae.

"This suggests Indian stock markets had largely priced in the move. While the RBI has projected GDP growth of 6.7% for the next fiscal year, concerns persist over whether this will translate into tangible economic momentum, especially amid tightening liquidity conditions.

"Caution also stems from inflation concerns, with the RBI projecting CPI inflation at 4.2% for FY 2025-26. Although inflation is expected to moderate, market participants remain watchful of potential risks that could impact price stability."