Lin Li, Michael Wan, Lloyd Chan and Khang Sek Lee of MUFG note that India’s GDP is expected to contract in the fourth quarter on weaker exports, although domestic demand remains resilient. From a currency perspective, they believe the rupee is under pressure from capital outflows and sector concerns, forecasting the USD/INR rate to rise over the medium term with the possibility of some relief in March.

Rupee under pressure from flows and sentiment

“Elsewhere in Asia, India’s fourth-quarter GDP is projected to contract on lower export growth due to the delayed impact of tariffs but supported by resilient domestic demand.”

“From a currency perspective, INR remains in negative territory given continued capital outflows due to the PE/VC exit cycle, still subdued FII inflows despite the recent trade deal, as well as recent concerns over the impact of AI on the Indian IT services sector.”

“We see USD/INR rising towards 93.00 over the medium term, although some short-term easing could be possible in March on better seasonality and some expected inflows.”

(This article was created with the support of an artificial intelligence tool and has been reviewed by an editor.)