Indian Rupee: Intervention and inflows counter Brent shock – Societe Generale

Societe Generale’s Asian FX strategists, including Santosh Ejanthkar and Tanmay Purohit, report that the Indian Rupee (INR) is threatening to retest its record low near 96.9550/USD after Brent crude rose above $90. The Reserve Bank of India (RBI) has intensified FX intervention and attracted over $20bn via FCNR(B) deposits and external borrowings, with a government target of about $90bn in inflows, which should ease near-term funding concerns despite Middle East risks.

RBI inflow strategy offsets oil pressure

"In Asia, the INR is threatening to retest record low of 96.9550/USD observed on 20th May after the rise in Brent crude above $90/b."

"The RBI yesterday stepped up FX intervention in both offshore and onshore markets to defend the currency."

"The RBI announced that the FCNR (B) deposits have attracted $17.4bn of inflows, while external commercial borrowings have brought in $1.34bn and overseas foreign currency borrowings by banks bought an additional $1.97bn – taken together these channels have already led to $20bn+ inflows since announcement in early June."

"The government is targeting total inflows of around $90bn, significantly above prevailing market expectations."

"These flows lower near-term external funding concerns and should be net positive for the INR but the Middle East escalation remains main drag."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)