USD/INR: Rupee to suffer in the short-term, peaking in Q3 – ANZ

Growth is set to turn negative in FY21. This will add to the rupee’s near-term weakness. Analysts at ANZ Bank expect a peak in USD/INR in Q3.

Key quotes

“Growth indicators have slumped to historic lows, including the forward looking PMI surveys. In addition, the number of active cases are yet to abate, resulting in extensions to the lockdown. This is going to weigh extensively on growth, which is likely to turn negative this financial year (starting April 2020).” 

“We believe the combination of the current risk-off market sentiment, increased probability of negative growth and the Reserve Bank of India’s preference for a competitive currency will see more near-term weakness for the rupee.” 

“We expect a peak in Q3, coinciding with the expected decline in COVID-19 cases. Nonetheless, we do not see material appreciation beyond that, with USD/INR likely to end at 79 by end-December.”