The Indian rupee was one of Asia’s best-performing currencies in August, declining by only 0.48% against the USD. Economists at ING believe that the INR is set to weaken into the end of the year.

Speculation about bond index supports INR 

There is undoubtedly some currency support from the RBI, but the INR has also benefited from renewed speculation about the inclusion of government securities in a global bond index.”

“At 13.5% YoY, the 2Q22 GDP print undershot expectations and activity will be softer in the coming quarters as the boost from reopening wanes, external headwinds increase, and further RBI rate hikes begin to bite.” 

“We would expect the INR to weaken into the year-end unless the bond index inclusion happens, or unless oil prices soften.”