USD/INR: Indian rupee likely to stay pressured through Q2 – MUFG

Massive sell-off in Indian equities and government bonds weigh on the rupee, explained analysts at MUFG Bank. They forecast USD/INR at 76.00 during the second quarter, at 76.50 in Q3 and at 77.00 in Q4. 

Key Quotes:

“The worsening of the COVID-19 outbreak in India with the fifth highest number of confirmed cases within ASEAN6+India led the government to impose a 21-day nationwide lockdown starting 25th March. Economic relief measures introduced so far include 75bps cut to the benchmark repo rate, 90bps cut to the reverse repo rate, 100bps cut to the cash reserve ratio, additional LTROs of up to INR1trn, FX swaps, and a INR1.7trn fiscal stimulus package.”

“India’s financial markets suffered severe strains in March. The Indian rupee spiralled to a record low of 76.275 against the dollar, the Sensex plunged to a four-year low, and the 5Y sovereign CDS spiked to a seven-year high of 265.32. The rupee found some reprieve by end-March, largely due to a reversal in dollar strength amid the introduction of more stimulus measures by G20 economies. The rupee is likely to stay pressured through Q2 from accelerating capital outflows amid an escalation in the outbreak in India and other countries outside China. The RBI’s “whatever it takes” approach during this crisis would ensure further easing down the line, including unconventional tools as stated by RBI Governor Das.”