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India Output Jump Reshapes Rupee Carry Setup
India's April manufacturing output hit 6.2%, its fastest pace in months. The data shifts RBI policy odds and strengthens the rupee's carry case ahead of the next USD/INR range test.
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India's manufacturing output accelerated to 6.2% in April, up from a revised 4.3% in the prior month. The print landed well above consensus expectations and marks the fastest pace of factory activity in several months. For the rupee, the data shifts the near-term calculus around RBI policy and carry trade demand.
The simple read is straightforward: stronger output supports the case for the Reserve Bank of India to hold rates steady for longer. That logic is correct as far as it goes. The better market read requires a closer look at the composition of the data and the positioning backdrop.
Rupee Carry Trade Mechanics
The rupee has traded in a tight 83.40–83.60 range for weeks, constrained by RBI intervention on both sides. A manufacturing beat of this magnitude does two things for the carry trade. First, it reinforces India's growth differential versus peers, making INR-denominated assets more attractive to foreign portfolio investors. Second, it reduces the probability of an RBI cut in the near term, keeping the 6.50% repo rate intact and the carry premium elevated.
Foreign inflows into Indian debt have been steady. The April output number could tip the balance for allocators who were waiting for confirmation that the growth story remains intact. If FPI flows pick up, the rupee would face upward pressure, forcing the RBI to either allow gradual appreciation or absorb dollars to maintain its preferred range.