Indian Rupee: Policy Support and Yield Reversal – Société Générale

Société Générale's latest report notes that the Reserve Bank of India has recently rolled out a dense array of forex-related measures and bond operations, providing policy support for the Indian rupee. Meanwhile, driven by global risk-off sentiment, U.S. Treasury yields have reversed course, and this shift in the external environment also lends support to the rupee's exchange rate.

**Policy Package and External Environment Align**

The Indian central bank's recent interventions are not isolated. According to reports, to stabilize the rupee's exchange rate, Indian authorities have even discussed various options, including rate hikes and issuing dollar bonds, signaling their determination to curb excessive volatility in the local currency. Société Générale believes that these proactive measures, combined with the pullback in U.S. Treasury yields, have jointly improved the rupee's short-term trading environment.

**Inflation and Trade Deficit Pose Constraints**

Despite the aforementioned tailwinds, the rupee's outlook is not without concerns. Société Générale also flags in the report that India's domestic consumer price index and wholesale price index inflation have both ticked higher, while the trade deficit is widening. These fundamental shortcomings limit the rupee's potential upside, leaving the market tone bullish but warranting caution.

**Short-Term Technicals Focus on Support Below**

On the technical front, the USD/INR exchange rate is currently trading near 94.88209. Previously, the level around 95.91, where the 20-period exponential moving average sits, was viewed as initial support; as long as the exchange rate holds below that level, pullbacks could attract fresh buying interest. Given the lack of clear overhead technical resistance in the near term, further gains in the rupee will rely more on momentum until new highs establish a new top reference. Société Générale concludes that its overall view on the rupee over the coming days remains cautiously bullish.