USD/INR continued to trade within a tight range between 82.00 and 82.80 in July. Economists at MUFG Bank analyze the pair’s outlook.
Positive view on INR
The good news on the food inflation front is that there has been meaningful progress in the monsoon and Kharif crop sowing in recent weeks, although rainfall distribution continues to be uneven. If these trends are sustained, food inflation could start to normalise over the next few months.
Most growth indicators remained resilient, with industrial production rising 5.2% YoY.
The flow picture also remains supportive for the INR, with a manageable current account deficit of around 1.5% of GDP, together with continued pick-up in portfolio flows thus far.
We expect FDI to reverse its soft patch recently, and External Commercial Borrowing flows should also improve in the coming months.
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