The USD/INR pair is at 76.21 as the rupee has underperformed in recent weeks due to the higher absorption of foreign currency flows by the Reserve Bank of India (RBI). However, economists at ANZ Bank see the rupee appreciating thanks to Indian stable external postion and RBI’s next actions.
Key quotes
“India faces weakness in its economic growth, public finances and financial system. However, its solid external position is a diamond in the rough. We estimate that the current account, basic and overall balance of payments are all in surplus at this stage and supportive of a stronger rupee.”
“Surpassing USD 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. The current strategy can continue but not with the same aggression, in that, there is room for modest appreciation for the INR.”
“The RBI has in the past, acknowledged the adverse implications of sterilisation in India. In the current environment of risk aversion in the domestic financial system, this problem is likely to be more acute than in the past. So, we think this will eventually lead the RBI to becoming a little more inclined to allow the INR to move with its regional peers.”
“We now forecast USD/INR to end 2020 at 74.00 with further gains to 72.00 by end 2021. As always, the statutory warning on the pack is that the global risk environment needs to be reasonably stable.”
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