India’s improving external balances will support the INR. Furthermore, increased FX intervention will also see modest appreciation pressures on the rupee. Therefore, economists at ANZ Bank forecast the USD/INR pair at 75.00 by year-end.
Key quotes
“Surpassing $500 billion, India has now become the fifth largest holder of FX reserves globally. The scale of intervention represents a change in the RBI’s FX policy. A host of issues ranging from safeguarding against the risk of a further downgrade in the sovereign rating and enhancing the country’s appeal as a manufacturing base explain this policy shift.”
“India’s solid external position is a diamond in the rough. We estimate that the current account, basic balance and overall balance of payments are all in surplus at this stage and supportive of a stronger rupee. In fact, the current account is set to record a surplus in FY21, estimated at 0.8% of GDP for the first time in 15 years.”
“We believe there is scope for modest appreciation owing to an improved external position and because intervention in the FX market comes with a cost. We expect USD/INR to end 2020 at 75.00.”
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