Highlights:
- Rupee recently breached 83-level against the dollar. However, RBI interventions have curtailed the rupee’s fall.
- We expect USD/INR to trade between 82-84 in H2FY24, gradually gravitating towards the lower bound of the range.
- Fed’s hawkish guidance in September is likely to keep UST yields and DXY elevated in the near term. We anticipate yields to moderate thereafter as Fed signals interest rates have peaked and markets re-evaluate their interest rate outlook when signs of weakness in the US economy begin to reflect in broader economic data.
- Yuan weakness is likely to persist until China announces any meaningful stimulus. This is expected to weigh on Asian EM FX, including rupee.
- Tight supply will keep crude oil prices elevated in the near term. However, we anticipate oil prices to moderate thereafter absent any meaningful China stimulus and as growth in US begins to slow.
- India’s current account deficit is expected to be manageable. FPI inflows are expected to recover on account of strong fundamentals and eventual moderation in UST yields and DXY.
- We expect RBI interventions to continue to contain rupee volatility and imported inflation.
