USD/INR likely to trade around 69 by end-2016

In 2013, the Indian rupee and the Indonesian rupiah were the two worst performing currencies in Asia during the height of the Fed Taper Tantrum. The USD/INR pair had jumped almost 30 percent to just under 70, owing to concerns regarding fiscal deficit and current account deficit. However, since then, both the fiscal and current account deficits have narrowed in India, assisted by decline in oil prices to a large extent.

Last year, the USD/INR pair was quite stable because of the rebound in economic fundamentals. For instance, the Indian rupee depreciated by about 5 percent against the US dollar in 2015, as compared with the average decline for Asian currencies of 8 percent. So far in 2016, the Indian rupee has lagged behind other Asian currencies.

A major sell-off in INR is not foreseen, said Commerzbank in a research note. Instead, the rupee’s attractive yield and rebounded fundamentals might continue to give an attractive proposition for investors seeking for yield.

“We expect RBI to maintain a pragmatic approach in 2016 and aim to reduce excessive volatility rather than target a particular level, we see USD-INR at 69 by end- 2016”, added Commerzbank.