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Analysts at MUFG Bank forecast the USD/INR pair at 73.750 by the end of the second quarter, at 74.000 by the third quarter, and at 74.250 by year-end.  

Key Quotes:

“The Indian rupee’s initial gains in March were nearly wiped out in a sharp one-day move on 30th March linked to the implosion of a US investment firm. Strong rupee gains were at first chalked up for most of March due to the influx of IPO-related inflows and rebalancing of funds’ portfolios after FTSE Russell added Indian equities into its global indices.”

“The rupee faces more downside risks ahead as the US dollar continues to strengthen in the near term and factors that kept the rupee largely resilient in March fade.”

“The re-imposition of lockdowns across several states in India due to the worsening of the COVID-19 pandemic will also bring about growth concerns.”

“Real yields turned negative again due to the acceleration of headline CPI to 5.03% y/y in February from January’s 4.06% y/y on higher food and oil prices. This is keeping the RBI’s hands tied with regards to cutting rates in the near term, inclusive of the policy meeting on 7th April. The RBI’s concern over the surge in Indian government bond (IGB) yields in conjunction with US Treasury yields suggests more operation twists to tame yields. Year-to-date, 10Y IGB yields have surged by 31bps to levels last seen in April 2020.”