USD/INR: Indian rupee to depreciate during 2022 – Wells Fargo
11.04.2022, 16:30

USD/INR: Indian rupee to depreciate during 2022 – Wells Fargo

Analysts at Wells Fargo point out that a tighter monetary policy from the Reserve Bank of India is likely not enough to prevent rupee weakness. They continue to forecast modest rupee depreciation through the end of 2022.

Key Quotes: 

“Despite a view for higher policy rates we continue to believe the rupee can weaken against the U.S. dollar going forward. Even if the RBI delivers 25 bps of rate hikes in June, the central bank will still be lagging the pace of tightening in the United States. Our U.S. economics team believes the Federal Reserve is likely to raise interest rates 50 bps in May and also begin shrinking its balance sheet. In our view, Fed actions should result in broad-based capital flows toward the U.S. dollar and place depreciation pressure on most emerging market currencies, including the rupee despite a newly hawkish RBI.”

“In addition, financial markets are currently priced for 69 basis points of RBI tightening over the next 3 months. We believe current RBI pricing is too aggressive, and as markets scale back the magnitude of tightening, the rupee should weaken. With that said, we believe any rupee weakness will be rather gradual as the RBI would likely utilize its stockpile of foreign exchange reserves to limit rupee volatility.”

“Going forward, we expect the USD/INR exchange rate to reach INR76.75 by the end of 2022, a weakening in the rupee of a little over 1% from current levels.”
 

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