We turn cautious on INR in the near-term, and raise our USD/INR forecast to 83.70 in three months and 82.00 in 12 months, with USD/INR likely to trade in a higher range of between 82.00 and 84.00.

We are positive over the medium-term picture for capital flows in India. First, bond index inclusion should bring at least $20bn of flows starting June 2024 or even earlier. Second, FDI should also improve given existing investment commitments. On inflation, we saw some moderation in tomato prices, but upside risks to food prices remain given the weak monsoon.

We expect RBI to remain hawkish, and now see the first cut starting Sep 2024.