USD/INR likely to trade around 65.5 by end-2018 – Lloyds bank
Source: FxWire Pro - Commentary / 27 Feb 2018 12:34:37 Eastern Standard Time
The USD/INR pair has managed to reverse its losses in January to consolidate back above 64. The move was linked to the capital outflow pressures because of a fall in India’s equity markets. Looking ahead, there seem several reasons for the USD/INR pair to move higher, noted Lloyds Bank in a research report. Firstly, Indian economy is highly dependent on crude oil imports. Therefore, higher crude oil prices compared to last year would ultimately increase India’s demand for U.S. dollars.
Secondly, reform attempts to stimulate economic activity, a key factor in underpinning currency inflows, have decelerated ahead of parliamentary elections in 2019. Instead, a government spending giveaways are expected to put additional pressure on external accounts. This, along with the fact that India’s banks and firms continue to wrestle with soft balance sheets, could weaken investment.
“Granted, India’s GDP growth accelerated to 6.3 percent y/y in Q3 versus 5.7 percent y/y in Q2, but we see the risks to future growth projections as skewed to the downside. We forecast USD/INR at 65.5 at end 2018”, added Lloyds Bank.
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