The Indian rupee fell to a new record low against the US dollar on Monday to just under the 77.50 level. Economists at Commerzbank expect the USD/INR pair to see another leg higher.

RBI to mitigate weakness

“The record low for INR highlights its weaknesses amid the increase in market volatility. These include 1) India’s twin deficit situation by way of the fiscal and current account deficits. 2) high dependence on oil imports, which is also a problem for most of Asia; and 3) rising inflation risks, particularly food prices.”

“The bias is still tilted to the upside for USD/INR. We expect further RBI intervention to mitigate INR’s drop but not to offset it altogether.”