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INR: CIBC Do Not Believe Election Result Implies Long-Term INR Appreciation

INR
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  • CIBC believe the election victory will reaffirm the bullish narrative on PM Modi’s pro-business policies, but do not think the result implies long-term INR appreciation. They note that the market was also bullish after the BJP’s vote result in May 2014 (pushing USD/INR to then YTD lows of 58.60), while the May 2019 BJP victory helped push USD/INR below 70.00. INR strength was brief in the wake of both those elections.
  • CIBC expect steady intervention to continue as the RBI aims to keep the rupee “competitive.” As such, they think the RBI will limit INR strength to 82.80 and forecast USD/INR upside to 83.60 by Q3. The RBI will likely leave policy rates unchanged at 6.50% on 7 June; real interest rates are high, but strong PMI data shows there is no urgency to cut, they add.
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  • CIBC believe the election victory will reaffirm the bullish narrative on PM Modi’s pro-business policies, but do not think the result implies long-term INR appreciation. They note that the market was also bullish after the BJP’s vote result in May 2014 (pushing USD/INR to then YTD lows of 58.60), while the May 2019 BJP victory helped push USD/INR below 70.00. INR strength was brief in the wake of both those elections.
  • CIBC expect steady intervention to continue as the RBI aims to keep the rupee “competitive.” As such, they think the RBI will limit INR strength to 82.80 and forecast USD/INR upside to 83.60 by Q3. The RBI will likely leave policy rates unchanged at 6.50% on 7 June; real interest rates are high, but strong PMI data shows there is no urgency to cut, they add.