Indian Rupee: Higher profile after hawkish RBI – MUFG
MUFG’s Michael Wan highlights that FX measures to attract US Dollar (USD) inflows into India have significantly lowered Indian Rupee (INR) rates via added liquidity, with limited impact on USD/INR.
Indian Rupee (INR) has gained more prominence following the RBI's hawkish monetary policy committee (MPC) minutes in August, according to MUFG's Michael Wan. The central bank's actions, such as additional liquidity and liquidity absorption, have had a noticeable impact on lowering INR rates. With the possibility of a 50 basis points (bps) rate hike from December, Wan believes that INR rates should move higher.
He recommends considering INR 5-year Notional Overnight Deposits (NDOIS) at around 6.467% as a means to express this view. The August minutes deviated from expectations, implying that the RBI has reached the end of its easing cycle and is ready to hike rates. Additionally, the early closure of the FCNR(B) facility hints at the market's expectation of liquidity absorption by the RBI, reducing the room for lower rates.
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