USD/INR to remain rangebound between 73 and 74 – SocGen

The Reserve Bank of India will likely keep rates unchanged in October according to analysts at Societe Generale. They see the USD/INR pair holding in the 73-74 range in the medium term. 

Key Quotes: 

“The RBI is likely to keep the policy rate unchanged at 4.0% for a ninth straight meeting in October. The inflation targeting central bank has shifted focus to supporting growth despite high inflation. An expectation that the high inflation is transitory has been the prime driver of the RBI's accommodative policy stance, as multi-speed recovery means that the economy as a whole continues to operate below the pre-COVID level. However, with inflation proving stubborn and potentially going to be further fuelled by improving economic activity, the RBI has seemingly adopted a strategy of talking dovish but acting hawkish in order to clear the path for eventual monetary policy normalisation.”

“Higher UST yields and surging oil prices have driven the USD/INR back above 74, but in the medium term we expect it to remain rangebound (73-74). Equity flows and IPO-related flows should remain supportive for the currency, while the prospects of bond index inclusion add to the upside potential for portfolio flows. The possibility of a rate hike by 2Q22 should mitigate some headwinds from Fed policy normalisation. Consequently, among the Asian high yielders, we prefer INR over IDR.”