Indian Rupee Gloom to Continue say Bank of America

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The USD/INR exchange rate is forecast to reach 65.90 by Wall Street giant Bank of America.

The Rupee has struggled during 2018, weakening versus both the Pound and the Dollar. 

And more weakness is likely argue analysts at Bank of America Merril Lynch who have updated clients with their latest views concerning the Indian currency.

The problems for the Ruppee are both internal and external with a banking crisis to contend with on the home front and a growing trade deficit seeing net demand for importers' currencies outweighing demand for INR.

Once so popular amongst foreign investors, Indian financial assets have also lost their allure which has had a further negative impact on the Rupee due to diminishing portfolio inflows.

"Indian Rupee continues to suffer owing to consistent widening in the trade deficit, portfolio outflows as well as considerable amount of negative press surrounding the public sector banks," says BofA.

The weakness comes against a backdrop of normally favourable seasonals at the beginning of the year.

Above: The Pound-to-Rupee exchange rate is enjoying a strong uptrend

Above: USD/INR is approaching November 2017 highs

Whilst accepting there is a possibility the Reserve Bank of India (RBI) could step in an try to prop up the Rupee, this isn't likely to reverse the trend, according to BofA.

"We believe that unless and until the narrative improves as a whole for India - both domestic and external - it will be difficult to see INR recovering."

BofA's expectation is for USD/INR to rise to "65.40 and 65.90,"  from a current spot market rate of 65.25.

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