USD/INR: RBI shows clear preference for higher levels – Credit Suisse

In India, a hawkish dissent at the 6 August Reserve Bank of India (RBI) meeting was a surprise for investors. However, economists at Credit Suisse think the RBI will prioritize growth over inflation in the near-term. Although India’s economic data have been improving, the RBI shows clear preference for a higher USD/INR.

RBI surprises with hawkish dissent, but change in stance unlikely in 2021

“RBI left policy rates unchanged. However, there was a surprise dissenting vote, with one MPC member of six (Jayanth Varma) expressing reservations about the committee’s decision to continue its accommodative stance. We think this dissenting view is unlikely to sway the rest of the RBI committee for the remainder of 2021.”

“We think the governor’s strong choice of words defending the RBI’s dovish stance, conveys the thinking of the rest of the MPC. Even though India’s economic activity is improving as the daily new number of Delta variant cases falls, we do not expect a change in stance until February 2022 at the earliest. The dissent does show, however, that some MPC members (although only a minority), are looking ahead to policy normalization.” 

“The RBI continues to intervene in currency markets to limit rupee appreciation. Although India’s economic data have been improving, the RBI shows clear preference for a higher USD/INR.”