The Indian Rupee (INR) rallied to its strongest level against the US Dollar (USD) since late June, driven by active intervention from the Reserve Bank of India (RBI) and significant foreign exchange mobilisation flows, according to Societe Generale strategists [1]. The RBI disclosed that it raised $136.38 billion through its FX mobilisation schemes, including Foreign Currency Non-Resident (FCNR) deposits, since early June, surpassing forecasts [1].
Stronger-than-expected second quarter Gross Domestic Product (GDP) growth, recorded at 7.8% year-on-year compared to the consensus estimate of 7.3% year-on-year, and a hawkish repricing of the US Federal Reserve's outlook have contributed to a revised rate outlook for the RBI [1]. Societe Generale economist Kunal Kundu now anticipates the RBI will implement three additional rate hikes between now and early next year, raising the key rate from 5.25% to 6.0% [1].
Despite these supportive factors, the latest bi-weekly Reuters Asia FX poll indicates that traders maintain a slightly bearish stance on the INR, while bullish bets on the Korean Won (KRW) have reached their highest level since 2013 [1].
The combination of robust GDP data, aggressive RBI intervention, and expectations of further rate hikes has underpinned the recent strength in the INR, although market sentiment among traders remains cautious [1].
CONCLUSION
The Indian Rupee's recent rally is supported by strong GDP growth, active RBI intervention, and expectations of further rate hikes. However, trader sentiment remains slightly bearish, suggesting ongoing caution despite positive economic signals.