Fitch Solutions revises forecast for Indian rupee to common at Rs 75.50/USD for 2021

Fitch Solutions on Monday mentioned it has revised its forecast for the Indian rupee to common stronger at Rs 75.50 to a US greenback in 2021, from Rs 77/USD.
For 2022, it revised the forecast to Rs 77 to a US greenback, from Rs 79 beforehand, to account for a stronger 2021 forecast.
“We expect the rupee to trade only slightly weaker over the near term from current levels,” it mentioned in a word.
It noticed depreciatory strain on the rupee because of worsening phrases of commerce from rising oil costs, additional financial easing, and bouts of risk-off sentiment being partially offset by the US greenback weak point and central financial institution overseas change intervention to fight imported inflation.
“Over the longer term, the overvaluation of the rupee in real terms and higher inflation in India vis-à-vis the US should exert weakening pressure for the rupee,” it mentioned.
The Indian rupee averaged Rs 74.10 to a US greenback in 2020.
“We expect the rupee to only trade marginally weaker in 2021, and have revised our average forecast to Rs 75.50 to a US dollar, from Rs 77.00/USD to account for the effect of extended US dollar weakness,” Fitch mentioned.
From a technical perspective, the rupee is holding under its resistance degree of Rs 72.50 to a greenback in addition to development resistance.
“This suggests that the rupee will likely weaken, similar to 2019, when the rupee displayed such a pattern,” it mentioned.
With India having a crude oil import dependence of greater than 80 per cent of its wants, rising world oil costs pushed by a worldwide financial restoration in 2021, will see a worsening of the nation’s phrases of commerce, and put depreciatory strain on the rupee.
Fitch sees Brent crude oil to common USD 53 per barrel in 2021, versus the 2020 year-to-date common of USD 43.18.
It additionally expects one other 50 foundation level reduce in benchmark rates of interest by the Reserve Bank of India (RBI), which may even exert some downward strain on the rupee.
“That mentioned, two elements will partially offset the depreciatory strain on the rupee. First, unfastened US fiscal and financial coverage will seemingly proceed exerting draw back strain on the US greenback into 2021, which might partially offset rupee weak point.

“Second, the RBI, with a foreign exchange reserve position of USD 578 billion as of December 2020, representing an import cover of around 19 months, will likely intervene to prevent excessive rupee weakness to manage imported inflation to reduce the risk of high inflation derailing India’s recovery in 2021,” in line with Fitch.
It forecast inflation to common 4.1 per cent over FY 2022-23 (April 2022 – March 2023) and FY2023/24.

“Food and fuel prices tend to heavily impact inflation in India. A poor growing season can easily cause a surge in headline inflation. Rising global fuel prices along with a global demand recovery will also drive up fuel inflation,” it added.