Indian Rupee: Strong GDP underpins higher INR yields – MUFG

MUFG’s Michael Wan highlights India’s strong GDP data, with Q1 FY2026-27 growth at 7.8% year-on-year versus 7.1% consensus. Resilient domestic demand, robust credit growth and supportive fiscal policy underpin his view that Indian rates are likely to grind higher. The team maintains a trade idea to pay INR 5-year NDOIS as El Nino risks and FCNR(B) closure reinforce the upside bias.

Growth supports gradual upside

"Meanwhile, India’s economy grew by 7.8%yoy in Q1 FY2026-27, surprising to the upside by beating consensus expectations of 7.1%yoy consensus."

"Resilient domestic demand offset geopolitical headwinds, supported by a 12.1%yoy jump in financial and IT services alongside private consumption rising 7.1%yoy. Private capex signalled some improvement, although a weak monsoon weighed slightly on agriculture activity at 3.6%yoy."

"Meanwhile, the broader set of numbers suggest that overall resiliency in the economy, with a pickup in credit growth to 19%yoy."

"From a rates perspective, we continue to see INR rates grinding higher, and we have an existing trade idea to pay INR 5y NDOIS (see Pay INR rates post RBI minutes)."

"Overall we think that with growth remaining robust, early closure of the FCNR(B) measure, credit growth picking up, fiscal policy still expected to be supportive, coupled with a possible strong El Nino moving forward the risk-reward tilts towards rates in India moving higher rather than lower from here."