Key Moments
- USD/INR has been slightly bid near 94.70 but remains capped below its 50-day moving average around 95.02 since mid-June.
- Foreign portfolio investors purchased a record INR418bn ($4.4bn) of Indian government bonds via the FAR route in June.
- Yields on 40-year and 50-year bonds declined to 7.38% and 7.45% in June following their inclusion in the FAR segment.
State Bank Dollar Selling Limits USD/INR Upside
Societe Generale strategists report that trading in USD/INR has started the third quarter on a subdued note, with the pair slightly supported but unable to break above its 50-day moving average near 95.02. They highlight that reported US Dollar (USD) sales by Indian state-owned banks, together with expectations that the Reserve Bank of India (RBI) will conduct smoothing operations, are constraining moves in the currency pair.
According to the strategists, USD/INR was “marginally bid at 94.70 this morning,” while persistent selling interest from state banks “is keeping a lid on the topside.” They note that the pair has traded below its 50-day moving average since mid-June, with anticipated RBI activity likely to maintain this contained price behavior.
Impact of FAR Inclusion on Ultra-Long IGB Yields
The strategists point to a notable shift in the ultra-long segment of the Indian government bond market following the RBI’s decision to include 40-year and 50-year bonds in the Fully Accessible Route (FAR) segment.
They write: “In India, the decision by the RBI to include ultra-long 40y and 50y bonds in the FAR segment has materially improved their appeal. The 40y yield dropped 32bp to 7.38% and 50y 27bp to 7.45% in June.”
Record FPI Purchases Through the FAR Channel
The inclusion of these longer-dated instruments and associated policy measures have coincided with a surge in foreign demand for Indian government bonds (IGBs). Societe Generale notes that foreign portfolio investors (FPIs) significantly increased their exposure in June via the FAR route.
As they state: “Overall, FPIs bought record INR418bn ($4.4bn) of IGBs via the FAR route in June, almost twice the preview monthly record of INR239bn of August 2024 – thanks to tax exemption measures and easier access to securities.”
Market Metrics at a Glance
| Indicator | Level / Change | Context |
|---|---|---|
| USD/INR spot | 94.70 | Described as “marginally bid” this morning |
| USD/INR 50-day moving average | Around 95.02 | Price has stayed below this level since mid-June |
| 40-year IGB yield | 7.38% | Down 32bp in June after FAR inclusion |
| 50-year IGB yield | 7.45% | Down 27bp in June after FAR inclusion |
| FPI purchases via FAR (June) | INR418bn ($4.4bn) | Record monthly total |
| Previous record FPI FAR purchases | INR239bn | August 2024, referenced as prior high |
Commodity Backdrop Not Yet Fully Reflected in INR
The strategists also draw attention to the external environment, noting that moves in key commodities have so far provided limited incremental support to the Indian Rupee (INR). They comment: “That said, the supportive backdrop from softer gold (sub-$4000/oz) and oil (below $75/b) has yet to fully filter through.”
In their assessment, while lower gold and oil prices are typically constructive for India’s macro backdrop and currency, the immediate effect on INR has been muted, with domestic policy actions and state bank flows playing a more dominant role in recent FX dynamics.
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