JP Morgan expects rupee to test 57-a-dollar in three months

JP Morgan expects USD/INR to test 57 per dollar in the next three months as Narendra Modi's sweeping electoral victory "is a more transformational outcome for India macro than most could have imagined" and will thus attract foreign inflows.

As a result, JP Morgan recommends receiving 5-year OIS expecting the rate to fall 25-50 basis points, inverting the swap curve further.

However, JP Morgan warns that higher borrowing from the new government could hurt longer-tenure bonds and recommends investors stick to the 5-year government bonds for carry.

The bank adds it expects Modi to fight inflation through administrative measures, and the focus on the Reserve Bank of India should reduce.

(Reuters)