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According to analysts from Danske Bank, falling inflation in India paves the way for more monetary easing that would keep the Indian Ruppe under pressure. They forecast USD/INR at 72.0 in 3M and at 73.0 in 6M.  

Key Quotes:  

“The USD/INR has been in a range of 68.4-72 this year. The USD/INR is kept in check by opposing forces: Softer growth and rate cuts in India are a drag on the INR, while rate cuts by the Federal Reserve work the other way. The rise in oil prices lately is a headwind for the INR and a risk going forward. We expect more rate cuts to keep depreciation pressure on the INR and look for USD/INR to move to 74 in 12M.”

“The Reserve Bank of India (RBI) cut rates by 25bp on 4 October to 5.15% on the back of growth disappointments and inflation running below target. We look for another cut in December of 25bp to 4.90 to underpin growth further.”

“India’s GDP growth has disappointed significantly this year. Economic growth fell for the fifth quarter in a row in Q2 to 5.0% from 5.8% in Q1. It is the weakest performance since 2013. The slowdown is broad based with private consumption, corporate investments and exports all growing more slowly.”