USD/INR: To enter back on a structural depreciation trend after a positive first half of 2022 – MUFG
10.01.2022, 16:11

USD/INR: To enter back on a structural depreciation trend after a positive first half of 2022 – MUFG

Analysts at MUFG Bank, forecast the USD/INR pair at 74.00 by the end of the first quarter, at 73.50 by the third quarter and at 74.00 by the end of the year. 

Key Quotes:

“The Indian rupee’s 1.7% drop against the US dollar in 2021 was one of the least amongst Asia ex-Japan currencies. This is despite the US dollar heft and swing in the current account to an estimated deficit at 0.8% of GDP in 2021 from 2020’s surplus at 1.3% of GDP. The rupee’s resilience underscores the impact from substantial capital flows mainly driven by a record amount of funds raised via IPOs in 2021. This is a key factor that would continue to keep the rupee supported even in the midst of US dollar strength in Q1 as a few blockbuster IPOs are in the pipeline. This is in addition to the potential inclusion of Indian government bonds into a few global bond indices for the first time, with the announcement expected in Q1.”

“Passive inflows into Indian government bonds due to the inclusion are estimated to be at least USD40bn, concentrated in 1H22. This will lend further support to the rupee. But when those inflows start to taper and IPO activity moderates, we expect the rupee to be back on a structural depreciation trend in 2H22 driven in part by the deterioration of India’s current account deeper into negative territory. This is in view of the widening of trade deficits as imports increase amid ongoing recovery in private consumption.”
 

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