USD/INR is likely to remain elevated over the near term as higher oil prices hit the INR via worsening twin deficits, in the view of economists at HSBC.

Three developments could support the rupee

“We remain cautious towards the INR, as persistently higher oil prices mean that the INR will be challenged by wider twin (current account and fiscal) deficits, slower growth, lower real yields, and dimmer prospects of portfolio inflows.”

“Developments that can support the INR include: (1) potential equity inflows from diversification; (2) if the Reserve Bank of India turns more hawkish; and (3) talks about including Indian government securities in global bond indices.”

See – RBI Preview: Forecasts from eight major banks, CPI forecast revision and guidance watched