Analysts at MUFG Bank see the USD/INR moving to the upside over the coming months. They forecast the pair at 74.50 by the fourth quarter and at 75.00 by the second quarter of next year.
Key Quotes:
“The Indian rupee’s weakness in September was partly driven by suspected RBI intervention as reported by newswires, after it hit as high as 72.920 against the US dollar on 1st September. Renewed rupee weakness at the end of September was driven by US dollar strength amid higher UST yields as investors start pricing in prospects of a faster pace of QE tapering by the Fed.”
“The rupee faces greater downside risks towards year end as the Fed embarks on QE tapering and India’s current account deficit widens on larger trade deficits driven by the increase in both oil and non-oil imports. But even so, excessive losses are unlikely as the Fed’s QE tapering has been well-priced, IPO-related inflows will continue to spur Indian equity markets higher, and demand for Indian government bonds (IGB) increase due to the potential inclusion of IGBs into a few major global bond indices.”
“Downside risks to the rupee can also be dampened by the likelihood of the RBI buying a lower amount of government securities under G-SAP 3.0 in Q4 following INR 1.2trn in Q3, in line with the reduction in government debt issuances in 2H FY21/22.”
