USD/INR outlook

The Indian rupee managed to strengthen against the USD over the past month. This occurred, despite a more-than-expected 50 bps cut in India's benchmark interest rate to 5.75%. 

While the recent push back in the market's anticipation of a US interest rate hike helped to shore up the currency, the lifting of restrictions on foreign investment in domestic bond markets also provided a boost to the rupee. 

Greater foreign investment should help to ease bank financing costs and pave the way for increased credit growth. Increased foreign investment is a much needed ingredient if India is to reach its 7.5% growth target for the end of this fiscal year and more aggressive targets in the future. 

"Looking ahead, the possibility of only a further 25 bps interest rate cut from the RBI in this fiscal year should maintain India's attractiveness from a carry perspective", says Lloyds bank. 

Meanwhile, India's improved current account position leaves it relatively insulated, but not immune, to US Fed policy tightening compared with other EM currencies.