Key Moments
- The Indian Rupee traded broadly unchanged over the week but still outperformed regional currencies on the back of debt portfolio inflows.
- Indian government bonds rallied, with the 10-year yield moving back to 6.75% as RBI Governor Malhotra pushed back against expectations of tighter policy.
- The composite PMI slipped to 57.4 in June from 59.3 in May, pointing to moderating momentum in both manufacturing and services.
INR Stability Supported by Debt Inflows
Societe Generale strategists report that the Indian Rupee (INR) remained essentially unchanged over the week. Despite this flat performance, the currency still fared better than many of its regional counterparts, a trend they attribute to continued inflows into local debt markets.
Bond Market Rally and Policy Repricing
The firm notes that domestic bonds extended their recent strength. According to their commentary:
“IGBs extended gains with 10y yields retracing to 6.75% after RBI Governor Malhotra pushed back on speculation of tighter policy.”
This shift in expectations for monetary policy filtered through to the derivatives market:
“The dovish repricing pulled the 1y OIS down to 5.75% from 6.38% a month ago.”
| Market/Indicator | Latest Level | Previous/Reference |
|---|---|---|
| 10-year IGB yield | 6.75% | – |
| 1-year OIS rate | 5.75% | 6.38% (a month ago) |
| Composite PMI | 57.4 (June) | 59.3 (May) |
Economic Data Signals Softer Momentum
On the activity front, the strategists point to a moderation in survey data:
“On the data front, the composite PMI eased to 57.4 in June from 59.3 in May, reflecting softer momentum in manufacturing and services.”
Global Backdrop: Dollar Strength Dominates
Despite shifts in other major asset classes, broader foreign exchange dynamics remained driven by the U.S. Dollar (USD). The strategists highlight that:
“However, broad dollar strength trumped the breakdown in gold prices below $4,000/oz and Brent to pre-war levels.”
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