The Indian Rupee improved against the US Dollar on Monday, influenced by the Indian government’s fiscal budget for FY 2026-27. The USD/INR pair dropped to about 91.60, as the Reserve Bank of India intervened to stabilise the currency.
India’s stock markets rebounded on Monday after a sharp fall due to the fiscal budget announcement, which included a surprise increase in the Securities Transaction Tax. Other budget highlights include a 22% increase in defence spending and a ₹12.2 lakh crore boost in capital expenditure.
RBI’s Monetary Policy Decision
The upcoming trigger for the Indian Rupee is the RBI’s monetary policy decision on Friday. In December, the RBI reduced the Repo Rate to 5.25% and announced a liquidity infusion of ₹1.5 lakh crore.
In currency movements, the Indian Rupee showed strength against the Australian Dollar. The USD/INR remains above the key support level of the 20-day EMA, indicating sustained buying pressure. Factors influencing the Rupee include India’s economic growth, oil prices, inflation, and US Dollar demand from importers. Major economic indicators like the US Nonfarm Payrolls data and ISM Manufacturing PMI will be watched closely for market impacts.
The government’s surprise increase in the Securities Transaction Tax is the most immediate factor for us, as it directly raises the cost of trading futures and options. We’ve already observed that F&O volumes on the National Stock Exchange were down roughly 15% this morning compared to last week’s daily average. This higher cost base means that we will need to target larger price moves to maintain profitability on short-term trades.
On the currency front, the Reserve Bank of India has drawn a clear line in the sand by intervening to push the USD/INR pair back towards 91.60. Market sources estimate the central bank sold between $500 million and $1 billion this morning to prevent the Rupee from reaching its lifetime lows. This determined action establishes a strong resistance level, and we should be cautious about building large long positions in USD/INR for now.
US Dollar’s Firmness Globally
This is not an isolated move; if we look back at 2025, the RBI sold a net of over $20 billion in the forex market to defend the currency. Their actions today suggest a continuation of that policy, meaning we should expect the central bank to actively cap any significant Rupee weakness in the coming weeks. Therefore, selling USD/INR on rallies toward the record highs might be a viable strategy.
Simultaneously, the US Dollar remains firm globally following the nomination of Kevin Warsh as the next Fed Chair. This is creating a tug-of-war, with a strong dollar internationally pulling USD/INR up while the RBI’s intervention pushes it down. The most likely outcome in the near term is not a clear trend but rather heightened volatility and range-bound trading.
This Friday will be critical, as we face both the RBI’s monetary policy announcement and the US Nonfarm Payrolls (NFP) report. Current consensus estimates for the US NFP data are for a net gain of 185,000 jobs, which could strengthen the dollar further if met or exceeded. The confluence of these two major events makes holding open positions into the end of the week particularly risky.
Following the 25 basis point rate cut we saw in December 2025, we anticipate the RBI will likely hold the repo rate steady at 5.25% this Friday. The government’s new expansionary budget could create inflationary pressures, making the central bank hesitant to ease policy further. A decision to hold rates would be seen as a moderately supportive factor for the Rupee.
