According to Michael Wan of MUFG, foreign exchange (FX) policies aimed at luring USD inflows into India have considerably reduced Indian Rupee (INR) rates through increased liquidity, with no effect on USD/INR. Wan anticipates that the Reserve Bank of India (RBI) will have completed its easing cycle and begin raising rates by 50 basis points starting in December, supporting the idea that INR rates should rise, in response to more hawkish August Monetary Policy Committee (MPC) minutes.
The RBI's position indicates that INR yields will rise.
"In Asia, another significant example of intervention is in India, where FX measures to attract dollar inflows, especially through the FCNR(B) channel, have quite a large impact on decreasing INR rates through an influx of liquidity and to a much smaller amount USD/INR."
"Going forward, we believe there is a decent probability INR rates trend higher from here, and we prefer paying INR 5y NDOIS (current: 6.467%) as a potential option to communicate that position."
"First, compared to the actual policy meeting and what markets anticipated, the August MPC minutes were more hawkish. This suggests the RBI has reached the end of its easing cycle, with the next move being higher rather than downward."
"With domestic growth remaining fairly robust, credit growth accelerating, the lagged impact from earlier oil price increases, fiscal policy supportive with a likely wider fiscal deficit, and possible interaction with adverse weather events, we continue to expect RBI to hike rates by 50bps starting in the December meeting."
"Second, the early closure of the FCNR(B) facility further signals that the incremental market pricing from here is for liquidity absorption by the RBI and less potential for lower rates."
The RBI's position indicates that INR yields will rise.
"In Asia, another significant example of intervention is in India, where FX measures to attract dollar inflows, especially through the FCNR(B) channel, have quite a large impact on decreasing INR rates through an influx of liquidity and to a much smaller amount USD/INR."
"Going forward, we believe there is a decent probability INR rates trend higher from here, and we prefer paying INR 5y NDOIS (current: 6.467%) as a potential option to communicate that position."
"First, compared to the actual policy meeting and what markets anticipated, the August MPC minutes were more hawkish. This suggests the RBI has reached the end of its easing cycle, with the next move being higher rather than downward."
"With domestic growth remaining fairly robust, credit growth accelerating, the lagged impact from earlier oil price increases, fiscal policy supportive with a likely wider fiscal deficit, and possible interaction with adverse weather events, we continue to expect RBI to hike rates by 50bps starting in the December meeting."
"Second, the early closure of the FCNR(B) facility further signals that the incremental market pricing from here is for liquidity absorption by the RBI and less potential for lower rates."
