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Analysts at MUFG Bank, point out higher oil prices weighed on the Indian Rupee. They forecast USD/INR at 71.50 by Q4 2019 and 72.50 by Q2 2020.  

Key Quotes:

“During September the Indian rupee strengthened against the US dollar in terms of London closing rates from 71.400 to 70.863. The Reserve Bank of India (RBI) is expected to cut the benchmark repo rate again, which currently stands at 5.40%, at the next meeting on 4th October.”

“The Indian rupee’s recovery in September was partly driven by concessions made by both US and China on trade, but gains were capped by a less dovish Fed, start of policy easing by the ECB, Trump impeachment risks, and increase in oil prices on geopolitical risks in the Middle East. Our projection of the rupee following a downward trek against the dollar in the year ahead has not changed, particularly with the dollar finding support from more aggressive easing by the ECB, Trump impeachment risks, and “no deal” Brexit risks have not abated.”

“Barring an escalation in geopolitical tensions in the Middle East, oil prices should remain relatively benign and keep both trade and current account deficit in check. The trade deficit would also be contained by further weakness in non-oil imports as private consumption remains sluggish, evident in y/y declines of auto vehicle purchases in August.”

“The government continued to introduce more stimulus measures in September, including corporate tax cuts, a new tax refund programme, and a funding window for affordable housing. However, monetary easing will still be required to boost growth. We expect the RBI to continue to cut rates for the rest of FY19/20, after 110bps of cuts done so far this year.”