USD/INR: Indian rupee to remain under pressure – MUFG

Analysts at MUFG Bank remain bearish on the Indian rupee. They forecast USD/INR at 80.500 by the end of the third quarter, and at 81.000 by the end of the year. 

Key Quotes:

“During July the Indian rupee plunged against the US dollar in terms of London closing rates from 78.970 to 79.253. The Reserve Bank of India (RBI) is expected to raise the benchmark repo rate by 50bps to 5.40% at the upcoming MPC meeting on 5th August, which would mark the third rate hike this year following a cumulative 90bps of rate hikes since May.”

“The Indian rupee hit a new record low of 80.180 against the US dollar in July, mainly driven by ongoing US dollar strength on expectations of aggressive Fed policy tightening and global growth fears. This prompted the RBI to impose a slew of measures to shore up the INR such as raising the gold import duty and easing rules for NRI deposits. In addition, RBI Governor Das strongly expressed that the central bank has “zero tolerance” for rupee volatility – an indication that the RBI likely intervened in the FX market to soothe rupee volatility.”

“We remain bearish on the rupee in 2H22 as recent measures introduced to shore up the currency are not sufficient to offset downward pressures stemming from extended US dollar strength, risks of further portfolio outflows, and larger trade and current account deficits.”