After initially sliding, with the INR falling by around 3.7% from its high vs. USD in late March, there has been a strong rebound in the currency recently. Economists at TD Securities see some further scope for the rupee to strengthen against the greenback in the short term against the background of further USD consolidation.
Price pressures more contained, RBI unlikely to react
“Lack of widespread lockdowns suggest prices are unlikely to pick up significantly. As such, we don't expect the RBI to react by tightening monetary policy at a time of pressure on economic activity. We continue to suggest receiving rates.”
“We see some further scope for INR to strengthen vs. USD in the short term against the background of further USD consolidation. We also think a lot of negativity is priced into the INR.”
“If we are correct in that the COVID-19 economic impact will be less severe than in the first wave last year and that as dire as it still is, COVID-19 cases are near to peaking, it implies the INR will not repeat the weakness exhibited in March/April 2020 when the currency fell by over 7% versus USD in less than a month.”
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