Societe Generale reports that the Indian Rupee's gains against the US Dollar are constrained, despite several supportive factors in the market [1]. Indian money markets have continued to unwind tightening expectations, with the 1-year swap rate falling by 8 basis points to 5.75%, marking a cumulative decline of 36 basis points since the Reserve Bank of India's (RBI) Monetary Policy Committee (MPC) meeting earlier this month [1]. The 10-year Indian Government Bond (IGB) yield has also eased to 6.80% [1].
Following the MPC meeting on June 5, coordinated measures by the RBI and the Ministry of Finance were introduced to boost Foreign Portfolio Investor (FPI) inflows into domestic bonds [1]. Additional policy support has been implemented, including the RBI's decision to allow loans against FCNR deposits for Non-Resident Indians (NRIs), which enables leverage and enhances the appeal of these instruments [1].
Societe Generale notes that bond inflows could receive a further boost if Bloomberg Index Services decides to include IGBs in its global index after a review later this month [1]. However, the bank cautions that FPI inflows may not result in near-term appreciation of the Rupee, as positioning for the US Federal Reserve offsets the support from portfolio inflows and lower oil and gold prices [1]. The USD/INR exchange rate is currently anchored by support at 94.91 (50-day moving average), with additional support levels at 94.00 and 93.50 [1].
CONCLUSION
Despite policy measures and easing commodity prices, Societe Generale expects limited near-term appreciation for the Indian Rupee against the US Dollar. Market positioning for the Federal Reserve continues to offset positive inflows and supportive actions by Indian authorities. The Rupee remains anchored at key technical support levels, with further developments dependent on upcoming index reviews and global market dynamics.