SocGen On INR

India’s FX reserve decline was one of the highest in EM Asia (~-18%). between January and October 2022 – a period of peak US dollar strength. The RBI’s continued efforts to limit FX depreciation and smoothen out volatility is a key reason behind this significant fall in reserves.

• The need for FX intervention might continue in 2023. Risks of weak portfolio inflows will
  persist until US yields remain high. If a “higher for longer (USD rates)” theme were to play out, the need for active FX intervention might resurface for the RBI, and in that context, reserve
  accumulation during ad hoc periods of risk on / portfolio inflows could prove to be prudent –
  albeit at the expense of idiosyncratic underperformance of INR vs peers.
• Looking ahead. If a rally against the US dollar were to materialise in the near term, we believe
  the INR could continue to underperform other Asia FX. However, we believe that a long INR vs IDR is a better expression of a medium-term long INR view, especially in the context of flattish to lower energy/commodity prices.