Goldman Sachs Revise USD/INR Forecasts Higher

Goldman Sachs note that their “commodities team forecasts an extended period of elevated oil prices which is likely to mean an almost a three-fold increase in the current account deficit in 2022 to USD 105bn (or 3.1% of GDP) from USD 34bn (or 1.1% of GDP) in 2021. Given high inflation and significant reserves, however, the RBI is likely to prevent any abrupt and large depreciation in the face of deteriorating current account balances. To a degree, this behavior has already been visible in recent weeks: India’s FX reserves have declined from a peak of around USD650bn to just below USD 600bn, and the Rupee has been one of the better performing Asian currencies over the past month. If CNY and NJA FX continues to move weaker in coming days alongside a stronger USD, we would expect to see more weakness in INR versus the Dollar too, and accordingly we revise our USD/INR forecasts to INR79, INR79 and INR78 over 3-, 6- and 12-month horizons (from INR78, INR78 and INR79 previously). Still the Rupee’s limited sensitivity to global cyclical risks means that if growth concerns deepen further, other EM high-yielders are likely to underperform more meaningfully.”