The INR has been an exception to the rule of FX weakness in the wake of monetary easing.
Lower policy rates have been positive for domestic equities and boosted growth-sensitive inflows.
Arguably, the two Reserve Bank of India (RBI) rate cuts this year have been supportive of the INR rather than negative.
Standard Chartered notes as follows...
- We expect the RBI to cut again in June and in August. However, the backdrop for new monetary policy easing may be a little less benign than for the previous two such policy steps.
- Indian government bond (IGB) yields have already rebounded from their early-2015 lows amid higher US Treasury yields and modestly higher Indian inflation.
- Amid risks of more volatility in capital inflows in the coming months, we downgrade our short-term recommended FX weighting on the INR to Neutral from Overweight.
