USD/INR: The Indian rupee still faces headwinds ahead – MUFG

Analysts at MUFG Bank forecast the Indian rupee will weaken gradually versus the US dollar over the next months. They see USD/INR at 78.500 by the end of the second quarter and at 79.500 by year-end. 

Key Quotes:

“The Indian rupee plunged to a new record low of 77.928 against the US dollar in May on the back of mounting investor concerns over both global and domestic growth and inflation. That led to a greater amount of net foreign institutional investment outflows from Indian equities to the tune of USD 4.6bn between 2nd and 25th May based on latest available data versus a net outflow of USD 3.8bn for the entire month of April.”

“The launch of India’s largest IPO in early May did little to boost the rupee, particularly in view of a lukewarm reception from foreign investors. With India’s IPO pipeline drying up amid the challenging global risk environment, inflows into India’s capital markets are expected to dwindle which would lead to greater amounts of net portfolio outflows and have a negative impact on the rupee.” 

“The impact of higher oil prices is starting to be evident on India’s trade, with a wider trade deficit seen in April at USD 20.1bn from March’s USD 18.5bn. This trend is likely to persist in the year ahead, leading to wider current account deficits and adding further downward pressure on the rupee.”