USD/INR: Bearish bias remains for the Indian rupee – MUFG

Analysts at MUFG Bank, point out that recent gains of the Indian rupee are likely to be shortlived in the coming months. They forecast USD/INR at 75.00 during the third quarter and at 75.25 by the end of the year. 

Key Quotes

“The Indian rupee started on a stronger footing in the first month of 2H20 primarily on dollar weakness amid a rally in the euro. However, rupee gains are likely to be shortlived in the coming months.”

“Net flows into Indian equities are vulnerable to a lull in IPO or merger and acquisition activities, especially if economic activities are affected by an escalation of the COVID-19 pandemic in India.”

“Rupee would be weighed by further monetary easing by the RBI. We expect a 25bps cut to the benchmark repo rate to a new record low of 3.75% at the MPC meeting on 6th August.”

“India’s oil import bill is likely to increase with average oil prices expected to be higher in Q3 and Q4 versus Q2’s USD33/b.”

“A weaker rupee is likely one of the key growth strategies to boost competitiveness.”

“Foreign reserves rose to a record high of USD517.6 billion as at 17th July from USD506.8 billion as at 26th June. However, relatively large net FX purchases since April and India’s trade surplus with the US beyond the USD20 billion threshold pose risks of India being included in the US Treasury’s monitoring list for currency manipulation.”