Kotak Securities: Post RBI quote from Anindya Banerjee, Head of Commodity and Currency Research, Kotak Securities

This policy is best read as a balance of payments package with a rate decision attached. By holding the repo rate at 5.25 per cent with a neutral stance even while raising the FY27 inflation forecast by 50 basis points to 5.1 per cent, the RBI has drawn a clean line: the rate instrument is reserved for inflation, and the rupee will be defended through the capital account. The expansion of the Fully Accessible Route to all new 15, 30 and 40-year G-Sec issuances, the removal of FPI concentration limits, the extension of FCNR(B) hedging support and the PSU ECB swap window, and the restoration of the export realization period to nine months together amount to the most comprehensive dollar-mobilization effort since 2013. The Centre’s simultaneous removal of taxes on foreign investment in G-Secs is the force multiplier, as it addresses the single biggest friction flagged by global bond funds and index providers.

We see this as constructive for the long end of the G-Sec curve. On the currency, these measures can aid the rupee’s appreciation over the near term, provided oil prices stay below $100 a barrel. We see scope for the rupee to appreciate towards 94 to 94.5 on spot over the near term, with the upside in USDINR now capped around the 96 mark. Any appreciation beyond 94 would depend on the actual quantum of dollar mobilisation through these newly announced routes and the trajectory of oil prices. With reserves at $682 billion, the RBI has ample ammunition to manage volatility while these flows gain traction.