India: Lessening RBI intervention to cause INR near-term gains – TDS

USD/INR trades around 74.77 on Thursday following the decline this week. Economists at TD Securities expect RBI FX intervention to lessen, with INR likely to trade with a near-term firmer bias.

Key quotes

“RBI will continue to ease policy, with at least 50bp of further cuts likely in this cycle. We also think that inflation will not act as a constraint to debt monetisation, in the current environment.”

“The RBI should seriously consider debt monetisation. The risk is that ratings agencies may see debt monetization as a trigger to push India's ratings to junk, which in turn could hurt India's markets, but as long as such measures are seen as exceptional and not the new norm, we think risks on ratings, inflation and the INR will be contained.”

“RBI will be less interventionist going forward, which in turn will allow the INR to benefit from strengthening FDI inflows, with INR likely to trade with a near-term firmer bias. INR sensitivity to USD gyrations has increased suggesting that it will benefit from any further pressure on the USD too.”