Indian Rupee: Carry appeal capped by Oil risk – BNY

BNY's Geoff Yu notes that India’s central bank (RBI) has stepped in to support the Indian Rupee (INR) as rising energy costs threaten external balances and FX volatility. iFlow shows INR is currently underheld versus earlier in the year. While INR could benefit from carry returning, elevated Oil prices are seen generating a balance-of-payments discount for the currency.

Rupee support as energy costs rise

"India also stepped in to support the rupee, reflecting a similar concern that rising energy costs could weaken external balances and intensify FX volatility."

"INR is currently underheld as well, having fallen significantly from a well-owned currency at the beginning of the year. INR holdings briefly turned positive after the ceasefire was confirmed but failed to consolidate."

"We still see INR benefiting from any return in carry but evidently the current level of oil prices will generate a balance-of-payments discount."

"The pressure is hitting energy importers first via weaker current accounts, imported inflation and fragile FX."

"Brent’s climb above $95 is a clean trigger for intervention. Higher crude is pushing governments and central banks back into defense mode, even without a fresh coordinated release of oil stocks."