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Free AccessMNI ANALYSIS: India PMI To Support INR Outperformance
--Solid Growth And Cooling Inflation To Halt Rupee Decline
By Stuart Allsopp
SINGAPORE (MNI) - India's manufacturing PMI rebounded to 51.6 in April from
51.0 in March, with the improvement driven by a rise in output and new orders as
well as employment. Additionally, inflationary pressures continued to ease, with
the softest increases for input costs and output charges reported since
September 2017 and July 2017 respectively.
--RANGE TRADING VS USD
Overall, the PMI print shows that growth in the sector remains solid and
inflationary pressures are cooling. Against such a backdrop, the Indian rupee
should outperform its regional peers given how much the currency has sold off
over recent weeks. Currently at 66.83, USDINR looks set to range trade between
66.50 and 67.50 in the short term.
--OUTPERFORMANCE VS ASIAN FX
The rupee is now at the weakest it has been, both in real effective terms
and in spot terms, relative to the rest of Asian FX since the August 2013
crisis. Back then, India's terms of trade were considerably worse as oil prices
were much higher and the current account was hovering around 5% of GDP, compared
to less than 1% now. Furthermore, back then India's economic reform drive had
barely been conceived, let alone enacted upon.
--REAL YIELD ADVANTAGE ATTRACTIVE
While the INR is not particularly attractive relative to the USD given the
ongoing narrowing of real interest rate spreads with the U.S., it is highly
attractive on a relative basis. With 2-year bond yields having surged to
12-month highs of 7.3%, real yields (based on trailing CPI) are an impressive
300bps, which is among the highest in the region.
This is supported by the continued build-up of foreign reserves at the
Reserve Bank of India, which suggest that the central bank not only has the
ability to defend the currency, but has been actively weakening it to boost
competitiveness. With the PMI reading showing new export orders rising for six
consecutive months, there is little pressure for the RBI to keep steering the
currency weaker. While MNI do not see a major bull market in the INR in spot
terms, the currency is highly likely to outperform in total return terms given
the sizable carry on offer.
--MNI Singapore Bureau; +65 8233 2326; email: Asia-Editor@marketnews.com
--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com
[TOPICS: M$A$$$,M$$FI$]
To read the full story
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Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.