USD/INR: Backdrop of global risk aversion and higher oil prices negative for the Indian rupee – MUFG
01.04.2022, 15:39

USD/INR: Backdrop of global risk aversion and higher oil prices negative for the Indian rupee – MUFG

Analysts at MUFG Bank see the USD/INR moving to the upside in the coming months and they estimate the pair will trade at 78.500 by the end of the third quarter. They see global risk aversion and higher oil prices as negative for the Indian rupee. 

Key Quotes:

“As the Ukraine war drags on, the rupee faces greater downside risks ahead as India’s terms of trade deteriorate substantially, ongoing risk aversion spur capital outflows and growth prospects dim in part due to higher inflationary pressures.”

“In view of the surge in oil and gold prices and India’s rather inelastic demand for oil, the trade deficit is expected to widen even further in the coming months. This will inevitably lead to a larger current account deficit possibly reaching 2.2% of GDP in FY22/23 versus an estimated 0.9% of GDP in FY21/22.”

“The lack of massive passive inflows into India’s bond market due to the delay of index inclusion, and another potential delay in the launch of India’s largest IPO that was originally slated for launch end-March, mean net portfolio flows on a BOP basis are tilted towards the downside. The RBI has since assuaged investors that it will step in to curb excessive INR volatility by utilising its foreign reserves. It has more than enough firepower given an import cover of slightly over 12 months.”

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