USD/INR: Rupee weakness to ensue as higher oil prices lead to wider trade deficits – MUFG
|During June the Indian rupee depreciated against the US dollar from 72.430 to 74.325. Economists at MUFG Bank expect the Indian rupee to stay pressured lower by higher oil prices.
RBI rate cuts remains limited
“The confluence of US dollar strength on a hawkish Fed and the rise in Brent crude oil prices above the $75/bbl mark weighed down the rupee, and these risks are likely to remain in the near-term.”
“With room for global oil prices to remain elevated in the coming months, India’s oil import bill will rise. This is not to mention the potential rise in oil demand, alongside demand for non-oil products, as mobility restrictions across most states ease gradually amid declines in new COVID-19 cases and a pick-up in the pace of vaccinations. This is likely to lead to wider trade deficits.”
“There are a few IPOs in the pipeline in July which could continue to attract foreign investors to the Indian stock market following a net inflow of $1.2 B in June. These inflows could help mitigate downside risks to the rupee, on top of a possible drawdown of foreign reserves.”
“The jump in headline CPI to 6.30% YoY in May from April’s 4.29% YoY reinforces our view that the scope for RBI rate cuts remains limited.”
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.