USD/INR: Dollar likely to keep rising, reaching 77 by year-end – MUFG

Analysts at MUFG Bank forecast USD/INR at 76.00 during the second quarter, at 76.50 in Q3, at 77 in Q4 and at 77.50 by the end of the first quarter of 2021. 

Key Quotes:

“The Indian rupee touched a new record low of 76.905 against the dollar in April, but those losses reversed by end-April. Foreign reserves rose by a cumulative USD4.0 bn during the first three weeks of April following the sharp USD6.0bn drop in March to defend the rupee. In April, the number of confirmed COVID-19 cases in India jumped by more than 23 times. With the lockdown likely to be extended in certain areas again from 3rd May, there are greater headwinds ahead for the Indian economy.”

“The RBI has been active in terms of policy responses in April with the reverse repo rate cut by 25bps, quantum of TLTROs doubled and refinance/liquidity facilities extended to financial institutions and mutual funds. There is even market speculation of the RBI indirectly participating in government bond auctions due to the swift change of ownership shortly after auctions. The rupee is expected to remain under pressure on risk aversion, but losses would be cushioned by narrower trade and current account deficits on the collapse in demand for oil and gold. This is also taking into account the point that India’s oil storage facilities are expected to reach full capacity in May.”