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INR: JP Morgan Revise Year-End USDINR Forecast Higher to 87.50, Move to MW INR

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JP Morgan note that the RBI’s reaction function has clearly shifted, but a significant one-off devaluation is unwarranted as INR appreciation has yet to outpace relative productivity gains. Volatility suppression of the late Das era is likely unsustainable amid further USD strength, however, meaning USDINR’s beta to the broader USD and USDCNH is likely to normalize from here, they say.

  • Bilateral exchange rates suggest a desire to slow the decline of CNYINR, meaning upside risks to JPM's USDCNY forecast also apply to USDINR. They have therefore revised their year-end forecast higher to 87.50 and moved to MW INR (from OW) on the GBI-EM model portfolio.
  • The INR has been, and should continue to be, an outperformer in relative terms as long as the selloff remains broad based. They note that the opportunity set for INR carry trades has narrowed but think it can still produce good risk-adjusted returns.
  • JPM stay short SGDINR via 6m forwards as defensive carry continues to have a place in Asia FX portfolios (entry: 64.46, current: 64.20, target: 61.00, stop: 64.50).
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JP Morgan note that the RBI’s reaction function has clearly shifted, but a significant one-off devaluation is unwarranted as INR appreciation has yet to outpace relative productivity gains. Volatility suppression of the late Das era is likely unsustainable amid further USD strength, however, meaning USDINR’s beta to the broader USD and USDCNH is likely to normalize from here, they say.

  • Bilateral exchange rates suggest a desire to slow the decline of CNYINR, meaning upside risks to JPM's USDCNY forecast also apply to USDINR. They have therefore revised their year-end forecast higher to 87.50 and moved to MW INR (from OW) on the GBI-EM model portfolio.
  • The INR has been, and should continue to be, an outperformer in relative terms as long as the selloff remains broad based. They note that the opportunity set for INR carry trades has narrowed but think it can still produce good risk-adjusted returns.
  • JPM stay short SGDINR via 6m forwards as defensive carry continues to have a place in Asia FX portfolios (entry: 64.46, current: 64.20, target: 61.00, stop: 64.50).