Indian Rupee strengthens as JPMorgan includes India's government bonds in emerging market index

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In a week marked by financial developments, the Indian rupee closed higher on Friday, settling at 82.93 against the U.S. dollar, a weekly gain of 0.3%. This performance comes on the heels of an announcement by multinational investment bank JPMorgan, revealing its plans to incorporate India's government bonds into its emerging market index.

This process is scheduled to commence on June 28, 2024, and will span over a period of ten months. Analysts predict that this move could generate inflows ranging from $22 billion to $30 billion.

B. Prasanna, head of global markets at ICICI Bank, told Reuters that passive inflows into Indian bonds could potentially escalate to as much as $50 billion over the forthcoming year if other foreign indexes follow suit and include Indian bonds.

Despite a rising dollar index, which reached a more than six-month high in Asia and was geared for its tenth consecutive weekly gain, the rupee managed to maintain its strengthening position. However, gains were limited due to importers purchasing dollars after the rupee opened at 82.8225 on Friday.

The potential for FTSE Russell and Bloomberg-Barclays - both of which maintain emerging bond indices - to include India is also under consideration. The upcoming FTSE Russell bond index review scheduled for September 28 will be observed with keen interest.

A foreign exchange trader at a state-run bank anticipates that the rupee will trade between 82.80 and 83.10 in the near term. This prediction takes into account potential downside risks such as rising U.S. Treasury yields and crude oil prices.

In the coming week, investors will be closely monitoring U.S. second-quarter GDP data and the core personal consumption expenditure inflation for August.

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