USD/INR: Rupee stuck on a bearish trend – MUFG

Analysts at MUFG Bank, forecast the USD/INR pair will trade at 72.50 in the first quarter and at 72.75 during the second quarter. They see India’s growth concerns unlikely to dissipate. 

Key Quotes:

“The Indian rupee was one of the only three major Asia ex-Japan currencies (others being the Korean won and Chinese yuan) to depreciate against the dollar in 2019. The rupee’s decline was largely driven by domestic factors, namely deteriorating economic growth and financial sector woes. Latest available data show real GDP growth averaged 5.1% between Q1-3 2019, which is the weakest growth rate since Q1-3 2009 due to a sharp slowdown in private consumption. 

“These problems are not going away in 2020, which would not only weigh on growth but also reduce the attractiveness of Indian assets versus other high yielding assets in the region such as Indonesia. Further weighing on the rupee is the widening of the fiscal deficit due to measures implemented to contain financial sector risks and boost the economy. In FY19/20, the fiscal deficit is expected to rise to at least 3.8% of GDP, versus 3.4% in FY18/19.”

“However, we do not expect rupee losses to be excessive as it is likely to be dampened by a weaker dollar and the current account deficit remaining relatively narrow. This is based on our assumption of benign oil prices and private consumption remaining weak, which is likely to crimp demand for gold and other consumer goods, thereby keeping the trade deficit relatively contained.”