Forwards Indicate Weaker Rupee

The rupee is expected to weaken at the open, losing ground on a stronger USD as the Biden administration inches closer to passing a $1.9tn stimulus bill. 1-month USD/INR forwards are up 0.07 at 73.70.

• Equity markets in India have opened in positive territory, which could help cap downside for INR. There are also upside risks to INR from oil, the attempted attack on an oil facility in Saudi Arabia has seen brent touch $70/bbl, which could put upside pressure on inflation, which in turn will see an expectation of the RBI tightening policy. Inflation was over 6% until the most recent print, above the top end of the band targeted by the RBI.
• Commerzbank says: "The drop in inflation allowed RBI to cut in February. If the economy continues to rebound strongly, this may also cause RBI to be more cautious in pursuing much lower rates. On INR, strong net inflows pushed USD-INR back below the 73.00 level once again. However, a more cautious risk backdrop could also restrain INR's ability to rally."