U.S. Urges Japan on Monetary Policy as Yen Volatility Raises Market Concerns 
Fed Confirms Rate Meeting Schedule Despite Severe Winter Storm in Washington D.C. 
Bank of England Expected to Hold Interest Rates at 3.75% as Inflation Remains Elevated 
Bank of Japan Likely to Delay Rate Hike Until July as Economists Eye 1% by September 
South Korea Vows Action to Stabilize Won as Currency Weakens Despite Strong Fundamentals 
Philippine Central Bank Signals Steady Interest Rates as Inflation Rises and Growth Slows 
U.S. Prosecutors Investigate Fed Chair Jerome Powell Over Headquarters Renovation 
ECB Signals Steady Interest Rates as Fed Risks Loom Over Outlook 
Bank of Korea Expected to Hold Interest Rates as Weak Won Limits Policy Easing 
ECB’s Cipollone Backs Digital Euro as Europe Pushes for Payment System Independence 
Thailand Economy Faces Competitiveness Challenges as Strong Baht and U.S. Tariffs Pressure Exports 
Brazil Holds Selic Rate at 15% as Inflation Expectations Stay Elevated 
Markets React as Tensions Rise Between White House and Federal Reserve Over Interest Rate Pressure 
RBI finalized the make-up of its new six-member monetary policy committee (MPC). They are three government nominees who are distinguished economists and three RBI members.
In a split decision, the governor has the deciding vote. This is part of the overhaul of RBI’s monetary policy setting, including setting an inflation target of 2-6% in the medium term.
The vote-based system puts RBI on par with its peers, allows for diversified views, and reduces pressure on the governor.
Meanwhile, the expectations of Reserve Bank to cut rates by 25 basis points during Christmas makes the central bank's inflation target 4 percent more difficult on a sustainable basis, which in turn causes the INR depreciation.
In addition to that, for USDINR, the immediate cause of concern prevails on the possible outflows from the near USD25bn FCNR-B (foreign currency non-resident) deposits raised in 2013 that would mature in September-November. However, net outflows should be manageable particularly given continued low yields worldwide.
INR trading radar:
Short SGDINR: This position is up by 2.7% including positive carry, as the SGD fell along with G10 currencies and SGD weakened vs. NEER. While the INR might face some headwinds on foreign currency deposit outflows, it will likely outperform SGD on total return basis due to its positive carry.
Long INRKRW 3m NDF: The trade is down by 1.3% including positive carry, mainly on KRW rally. INRKRW is trading close to 3-year lows. The RBI credibility is intact with the new governor and the intervention strategy will likely continue. The INR foreign flows have improved recently and the risk sentiment should support the performance. The trade has a positive carry of 44bp/month.
USDINR 3mx12m NDF flattener: We entered into USDINR 3mx12m flattener this week. The forward points should fall as the demand for the USD will likely increase in the onshore markets from the counterparties to RBI's long positions. The RBI will be cautious in providing USD liquidity to the markets, given FCNR payments in coming months.
