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.”
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