The Reserve Bank of India will likely buy dollars from the market and absorb rupee liquidity by selling bonds as flows related to India's inclusion in global bond indices begin, JPMorgan's head of emerging market economics told Reuters.

"Investors assuming that the inflows will lead to an appreciation in the rupee and a decline in yields seem to have forgotten that they live in a country which has one of the most activist central banks," Jahangir Aziz said in an interview.

JPMorgan's decision to include India in its emerging market bond index from June 2024 is likely to bring in between $15 billion and 20 billion, raising the net foreign assets on the central bank's balance sheet and testing its forex and liquidity management.

"The RBI will likely reduce their net domestic assets by selling bonds to balance that. Otherwise, you are raising money supply and risking inflation."