USD/INR: Delayed Indian recovery to cap the rupee – ING

The Indian rupee has started this month on a soft note after breaking the tradition to suffer a sell-off in May. Looking ahead, economists at ING expect INR to be capped by delayed economic reopening.

Breaking from the tradition of a May sell-off

“The INR’s 2% gain in May vs USD (month-end basis) was a break from the traditional sell-off due to the wedding season jump in gold imports and despite high global oil prices in the month.”

“The currency is off to a weak start in June, even as a gradual easing of covid restrictions has begun to revive activity. Base effects have been helping to flatten YoY activity growth just as they have kept the inflation rate within the RBI’s 2-6% target.”

“A significant hit to economic confidence in the second wave suggests the recovery is going to be delayed. We think this should cap any significant upside in the INR from here on.”