USD/INR has been stable between 72 and 77 since the COVID-19 pandemic outbreak. In the view of analysts at DBS Bank, the pair is likely to remain so in 2022-2023.

One downside risk for the rupee is the trade deficit

“Barring unforeseen shocks, especially the new Omicron COVID-19 variant, we expect the same trading range to be intact in 2022 and 2023.”

“In 2022, we expect the USD to strengthen worldwide into the two Fed hikes we forecast for 4Q22. However, upward pressure on USD/INR should be mitigated by two rate hikes from the Reserve Bank of India, one in 3Q22 to 4.25% and another in 4Q22 to 4.50%.”

“One downside risk for the INR is the trade deficit which has widened to USD139 B in January-October vs USD95 B in calendar 2020. The current account surplus in FY21 will reverse into deficits in FY22 and FY23 but they will be benign at 1.5% and 1.6% of GDP respectively.”

“Another risk comes from Fitch placing India’s ‘BBB minus’ long-term foreign currency debt rating on negative watch.”