We project USD/INR to drift down towards 81.50 by year-end. The main reasons include: Continued strong economic performance. Positive real interest rates. Inflation has moderated steadily since the peak of just under 8% in April 2022 to an average of 5.8% so far this year. RBI has hiked by 250 bps to 6.50% since May 2022. This implies positive real interest rates at around 70 bps. A stabilization in CNY volatility should also aid INR.

However, an extended period of elevated Oil prices remains the biggest risk factor for INR.