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Analysts at MUFG Bank, point out that global stock correction affected Indian equities in September. They see the USD/INR holding around 73.750 during the fourth quarter and rising to 74.000 by the end of the first quarter. 

Key Quotes:

“The Indian rupee’s modest depreciation against the dollar in September came after its strongest year-to-date gain in August. Factors that weighed on the rupee include the dollar rebound, and net outflows from equities led by the global stock correction. The Sensex’s decline in September was the largest since the 23.1% plunge in March, and Indian equities recorded a net outflow of USD0.7bn from USD6.1bn of inflows in August.”

“Rupee losses were probably dampened by lower oil prices. The cheaper import bill in September may translate into a narrower trade deficit that month following the USD1.9bn increase in the trade deficit to USD6.8bn in August.”

“Other factors that will weigh on the rupee include negative real yields, Indian government bond issuances to finance the fiscal deficit, unconventional monetary policy tools, risk of outflows from equities and market volatility ahead of the 3 rd November US presidential elections. With bond issuances to increase in 2H FY20/21, the need for the RBI to conduct more ‘operation twists’ to keep a lid on yields may increase.”