USD/INR: Indian rupee to show stability before recovery – CIBC

Analysts at CIBC, see the USD/INR pair trading at 71.0 during the first quarter of 2020 and at 70.3 during the third quarter. 

Key Quotes: 

“Q3 GDP came in at 4.5% y/y, the softest reading since Q1 2013, and far from the heady times seen over the last several years. While global growth has been stilted, putting pressure on activities in many global economies, for India, the degree of slowing has come as a surprise to many market participants. But better prospects for global growth and eased risk concerns (largely via developments in US-China trade relations) should lend support to the Indian economy next year. Nevertheless, we’re cautious of being overly optimistic.”

“Given the softer growth outlook, coupled with higher inflation (likely an additional reason behind the RBI’s pause) and already-low domestic rates, USD/INR has remained in a relatively tight and stable range over the last four months, of 70.50-72.50. Moreover, spot recently tested the lower boundary and held. We expect some
modest near-term weakness in the INR, but for it to be contained to recent boundaries.”

“INR was an underperformer compared to its regional peers throughout 2019, but can recover ground in 2020 against an expected softer USD. The stabilization of bond yields should also help counter risks, but yields are relatively low, and we expect investors to be looking for higher yields and a softer INR to enter longs.”