Rupee set to rally on India's inclusion in JPMorgan bond index

The Indian rupee is expected to climb at the open on Friday as India's inclusion in JPMorgan's widely followed emerging market bond index is expected to lead to inflows of billions of dollars.

Non-deliverable forwards indicate the rupee will open at around 82.80-82.82 to the U.S. dollar, compared with 83.09 in the previous session.

"We would probably have been much higher if global cues were supportive," a forex dealer at a Mumbai-based bank said.


"No doubt that this (inclusion) is a big positive, but keep in mind, from the near-term perspective, that inflows will happen months down the line."

Indian government bonds will be included in the Government Bond Index-Emerging Markets index and the index suite, JPMorgan said on Friday.

Inclusion will start on June 28, 2024, and extend over 10 months with 1% increments on its index weighting. India is expected to reach the maximum weighting of 10%, JPMorgan said.

The index inclusion could result in inflows of about $24 billion into eligible government bonds from the start of next year to May 2025, IDFC First Bank said in a note.

India's inclusion in the JPMorgan index increases the probability of inclusion into the Bloomberg Global Aggregate Bonds Index, which, IDFC First Bank estimates, could lead to additional inflows of $15 billion to $20 billion.

However, on the day, the rupee will have to contend with another move higher on long-maturity U.S. Treasury yields.

The 10-year yield climbed to 4.50%, the highest since 2007, on expectations that the U.S. Federal Reserve will hold rates higher for longer.

The hawkish hold from the Fed is pushing the U.S. yield curve higher and supporting the dollar, ING Bank said in a note.

The dollar index reached 105.74 on Thursday, the highest in over six months. U.S. equities slumped overnight with the S&P 500 index having its worst day since March.