India Insight: weak macro, resilient markets – ANZ

Considering the latest concerns surrounding the Indian rupee (INR) and bond yields, seesawing around 71.48 and 6.48% ahead of Monday’s European session, the Australia and New Zealand Banking Group (ANZ) came out with its own analysis.

Key quotes

“A universal question has popped up amongst investors. There has been a slew of bad news on the India macro story – slowing economy, financial sector problems and a worsening fiscal position. And yet, the Indian rupee and bond yields have remained remarkably resilient. What explains this?”

“Ironically, it is the macro stresses that lie at the heart of this paradox. The associated slowing demand for credit, combined with rising risk aversion, is raising the proclivity of the financial sector to increase its exposure to government bonds.”

“The rising surplus on the basic balance of payments (BoP) is not only anchoring the rupee, but allowing the Reserve Bank of India (RBI) to inject liquidity through its intervention in the FX markets.”

“An official acknowledgment of the fiscal slippage may break the current trends in bond yields and the rupee, but only temporarily. A more sustained reversal will need to wait for a durable revival in growth.”