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Commerzbank highlights that USD/INR has stabilised between 94.00 and 95.00 since mid-June, trading near 94.74. The range-bound behaviour follows a coordinated package from the Indian government and RBI to attract foreign inflows, including expanded FAR access, tax exemptions, subsidised FX swaps, and favourable treatment of FCNR(B) hedges and lending, which could draw USD30–50 billion.
Reform measures support INR stability
“Overall, the June flash PMI points to a moderation in growth rather than a sharp downturn. Manufacturing continues to face weaker domestic and external demand alongside supply chain disruptions, while services remain relatively resilient, supported by stronger international demand. A further easing of Middle East-related supply bottlenecks could support a rebound in activity in the coming months, although this will depend on the durability of the fragile ceasefire.”
“In FX, USD/INR was little changed at around 94.74 yesterday. Since mid-June, the pair has stabilised within a 94.00-95.00 range following a coordinated package of measures announced by the government and the Reserve Bank of India (RBI) to attract foreign inflows.”
“These measures include expanding the Fully Accessible Route (FAR) to cover long-term government bond issuance, exemptions from capital gains and withholding taxes for foreign investors, a subsidised FX swap facility for external commercial borrowings, and full hedge support for FCNR(B) deposits. Current estimates suggest these initiatives could attract USD30-50bn of inflows.”
“The package could prove particularly effective following the RBI’s clarification that FX hedges associated with FCNR(B) deposits will be exempt from the USD100mn net open INR position limit. Banks are also permitted to extend loans using these deposits, further enhancing their attractiveness and potential impact on capital inflows.”
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