- New highs in India’s basic balance should support further INR strength
- Currency strength remains at odds with a very weak macro outlook
- COVID cases have exceeded 3.7mn leaving further downside risks to the recovery
INR’s usual seasonal pattern of August weakness came to a halt this year. Appreciation of almost 2% through the month left the rupee as the region’s best-performing currency and saw the currency trade sub 74/USD for the first time since March. The sizeable FX intervention over recent months – FX reserves are up almost $50bn through the first six months of the year – looks to have come to an end and leaves questions over a change of exchange rate strategy from the RBI. Given this policy shift, we no longer expect INR weakness and see scope for further modest appreciation.
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