MUFG expects the RBI to end its easing cycle and raise rates by 50bps in December, boosting INR yields amid robust growth and inflation risks.
Recent FX measures by India to attract USD inflows have lowered INR rates through added liquidity, though USD/INR impact remains limited. The August Monetary Policy Committee minutes signaled a more hawkish RBI stance, suggesting the easing cycle has concluded and rate hikes are imminent.
MUFG forecasts a 50bps rate increase starting in December, citing strong domestic growth, accelerating credit, lagged oil price effects, and supportive fiscal policy. The RBI’s shift follows concerns over inflation and potential weather-related disruptions, reinforcing expectations for higher INR yields.
The firm recommends paying INR 5-year NDOIS, currently at 6.467%, as a strategic position to capitalize on rising rates. The RBI’s policy pivot contrasts with earlier easing expectations, aligning with broader regional trends in Asia.