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.”
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