Indian Rupee: Rate hike path supports currency – Societe Generale

Societe Generale strategists report that the Indian Rupee (INR) has reached its strongest level against the US Dollar (USD) since late June, thanks to active Reserve Bank of India (RBI) intervention and substantial foreign exchange mobilisation flows. These factors, combined with stronger-than-expected second-quarter (2Q) Gross Domestic Product (GDP) growth and hawkish Federal Reserve rate-repacing, have led economist Kunal Kundu to predict three more rate hikes by the RBI, boosting the key rate from 5.25% to 6.0%.

Despite this optimism, a Reuters Asia FX poll indicates that traders remain marginally bearish on the INR. The INR surged to 94.27/USD, its strongest point since late June, driven by RBI intervention. Since early June, the RBI has facilitated more than forecasted $136.38 billion through its FX mobilisation schemes, including FCNR.

With GDP beating expectations at 7.8% year-over-year compared to the consensus of 7.3%, and the Federal Reserve taking a hawkish stance, Kundu anticipates three additional rate hikes from the RBI between now and early next year, raising the key rate to 6.0% from the current 5.25%. Recently, the bi-weekly Reuters Asia FX poll shows traders maintaining a slightly bearish outlook on the INR, while bullish bets on the South Korean Won (KRW) have surged to their highest level since 2013.