The Reserve Bank of India's policy decision is expected on Friday, with economists divided over whether the central bank will hike rates or keep them unchanged.
If rates stay unchanged, the Indian rupee may weaken and come under pressure in the short term, as per the Reuters report.
However, in such scenarios the central bank may step in to control sharp currency moves, so the fall may not be too big.
Indian stock markets may not react much to unchanged rates, as per AlphaGrep Mutual Fund CEO Bhautik Ambani, Reuters.
He adds, but if inflation forecasts are increased, markets may start expecting future rate hikes in FY2026–27.
A 25 bps rate hike could support the rupee because it shows RBI is actively defending the currency.
Even if the repo rate rises by 25 bps, the 10-year government bond yield may stay below 7.15%.
Equity markets may fall because higher rates make borrowing more expensive.
A rate hike plus a more aggressive stance could give a stronger boost to the rupee as it signals more tightening ahead.
The rupee may initially react sharply and could face resistance near 94.80 per US dollar.
A 50 bps rate hike would surprise markets and likely give the strongest support to the rupee among all options.
The rupee could strengthen to around 94 per US dollar after such a move.
Bond markets would react strongly, especially short-term yields, which may rise faster than long-term yields.
