Global Rates Ideas EM & DM

Research evidence excerpt

Global Rates Ideas EM & DM

Fixed Income ● Rates

19 June 2026

India: From two shocks to one; easing of upside risks to NDOISDuncan Tan

APAC Rates Strategist rates

The Hongkong and Shanghai

Banking Corporation Limited,

Singapore Branch ◆ The near-term BOP and rupee outlook has sufficiently turned around that their potential to

duncan.tan@hsbc.com.sg

+65 6658 7255 drive higher NDOIS rates is much diminished

◆ Little visibility on the extent of food inflation impact from the weather shock

◆ A general decline in banks’ cost of funds could spill over and lead to bull-flattening of the

front-end of NDOIS and IGB curves (up to 5Y)

The case for positioning for higher INR NDOIS rates has significantly weakened in June, and we

therefore close our pay 5Y trade idea. Our prior thesis for the idea was centred on the

combination of oil price and weather shocks, which would worsen emerging balance of payment

(BOP) pressures and drive inflation higher-than-expected. As a result, market expectations for

higher short-term rates, to address these price and financial stability risks, would be sticky.

Moderation in oil price provides much BOP and inflation relief

Crude oil prices have, however, significantly moderated over the past month, and with the

announced US-Iran deal, prices could stay low relative to prior ranges seen over the March-May

period. BOP outflows and incremental inflationary pressures, via fuel imports, could thus

materially ease ahead.

The RBI had also, a couple of weeks back, announced extensive FX flow management

measures to attract foreign currency inflows via non-resident deposits and external commercial

borrowing channels. We expect this to lead to a significant rebuild of FX reserves and should

anchor market confidence around rupee stability.