HSBC cuts its Indian rupee to US dollar forecast for the end of the year to 62 from 65 previously, citing improvements in the current account deficit (CAD) and measures to attract inflows.
HSBC notes the Indian rupee to benefit from any inclusion of local government bonds in the JP Morgan government bond index for emerging markets, and also cites the $1 billion rupee-linked bond issuance launched by World Bank's private sector arm International Finance Corp.
The investment bank also lowers its end-2014 forecast for the pair to Indian rupees 66 from 70 earlier.
Sharp gains, however, would be capped as HSBC suspects the RBI could utilise the Indian rupee's strength as an opportunity to build up its forex reserves.
HSBC continues to recommend holding US dollar to Indian rupee NDF 1 month versus 12 month flattener trade with a target of 300 points from around 410 points currently.