USD/INR: Indian rupee to be on a modest depreciation trek in the coming months – MUFG

Analysts at MUFG Bank, expected the Indian trade deficit to widen during the second half of the year. They add that blockbuster IPOs offered support to the rupee in the context of global risk aversion. Their forecast is for USD/INR at 74.500 during the third quarter and at 75.250 by the second quarter of 2022. 

Key Quotes:

“The Indian rupee was more stable than most Asia ex-Japan currencies in July that were hit by negative sentiments driven by Delta variant concerns. Admittedly Indian risk assets were also negatively affected with foreign investors offloading Indian equities in July following two months of net inflows. But one of the factors that kept the rupee relatively resilient was IPO-related inflows due to launches of a few blockbuster IPOs in July. With the IPO calendar still looking busy in August, the rupee could continue to hold up relatively well despite lingering Delta variant concerns.”

“We still expect the rupee to be on a modest depreciation trek against the US dollar in the coming months as the current account deficit is expected to widen on larger trade deficits. This will be mainly driven by stronger import growth as private consumption rebounds following the relaxation of mobility restrictions.”

“But with oil imports likely to become cheaper as oil prices fall from its cyclical peak in the coming months, the current account deficit is expected to be well-contained below 2.0% of GDP in 2021, limiting rupee losses.”