Indian Rupee not spared by lower oil prices

The INR fell 3.5% last month, marking the third worst Asian performance after the MYR (-8.6%) and IDR (-3.8%). Despite lower oil prices (lower trade deficit), portfolio outflows (equities) have accelerated from India.

CPI fell to a low of 3.78% in June from 5.4% while Q2 GDP growth slowed to 7.0% yoy from 7.5% in Q1. A rate cut by the RBI is not ruled out on 29 September, but odds will keep fluctuating depending on China and the Fed rate decision, says Societe Generale. 

India is in a good position relative to Asian peers thanks to stronger growth prospects and moderating inflation, low ST currency liabilities and a narrowing fiscal deficit. Governor Rajan has reiterated that the RBI is not averse to drawing down the $380bn of FX reserves to counter rupee volatility, notes Societe Generale.