INR to appreciate by around 10% against USD by end-2020 - Westpac

According to analysts at Westpac, INR still remains much weaker over the year as the past few months have indeed been a bit rocky in India, but recent release of the World Bank’s Ease of Doing Business index highlights the longer-term progress India has made on structural reforms.

Key Quotes

“India placed 77th for 2019, marking an improvement of 65 positions in ranking since three years ago.” 

“Markets had been encouraged by this trend, though since the end of 2017, concerns have arisen over India’s twin defi cits amid global pressures relating to high oil prices and FOMC tightening. There is now a clear tension in the Government around maintaining economic growth into the April/May election, while also meeting defi cit targets.”

“Recently a ruction emerged between the Government and the RBI about the amount of profit the RBI distributes. The RBI correspondingly warned against infringing on central bank independence. This points to the next six months being a test of the Government’s resolve.”

“We think markets will remain wary of India in the lead-up to the election and the Rupee is likely to remain near recent lows. Beyond that point, India’s growth prospects and the general trend towards a stronger institutional framework is likely to attract capital into India.”

“With the USD weakening from September 2019, the INR is forecast to appreciate by around 10% to end-2020.”