FX Insights: Indian rupee (INR)

Spot (mid-market) rate = INR 71.40 / USD (11:40am EST, August 13, 2019)



Recent events in India have led to a hike in the risk premium for Indian assets. Indian equities suffered their worst July in 17 years, and the Indian rupee is now the worst performing Asian currency versus the US dollar.1




Primary reasons:

  • India revoked Kashmir autonomy. On August 5th, the Indian government revoked 70 years of autonomy in the disputed Muslim-majority state of Kashmir, and sent thousands of army troops to crush any possible disorder in response. International human rights groups swiftly condemned the action, but Hindu nationalists in India are celebrating, believing this could bring peace and investment to the war-torn region. Pakistan, which for years provided the Kashmiri insurgency with financial aid and weaponry, quickly suspended trade with India and downgraded diplomatic ties.2 President Trump claimed that PM Modi had asked him to mediate on Kashmir (vehemently denied) and this unleashed a political storm in India.3

  • Surprise rate cut by the Reserve Bank of India. On August 7th, India's central bank cut its benchmark repo rate by a larger than expected 35 basis points to 5.4% (25 bps was expected), and signaled further easing might be in the pipeline. The RBI also revised its growth forecast for fiscal 2020 down from 7% to 6.9%, emphasizing more downside risks.4 Market analysts says this reflects the severity of declines in Indian economic growth and private sector investment.5

  • Mixed reviews for the new finance minister's first budget.

    • On July 5th, India's first female finance minister, Narendra Sitharaman, presented her annual budget. It was the first budget since PM Modi's landslide victory in the general election in May and expectations were high. Ms. Sitharaman laid out a roadmap for India, which aspires to be a $5 trillion economy (from $2.7 trillion) within five years. Boosting the country's infrastructure was the government's top priority.6

    • Indian industry and global investors had three requirements from the budget: 1) increase fiscal spending to boost growth, 2) make government economic statistics more transparent and the fiscal math more credible, and 3) announce hard-hitting reforms to "revive the animal spirits of Indian industry". According to analysts, the budget disappointed on all three counts, and appeared status quo on most issues.7

  • US-China trade war impacts India. Asian emerging markets and their currencies, including India and the rupee, have been hard hit by the US-China trade war. Given low expectations of a near-term resolution of the trade war, Asian currencies should face headwinds for quite some time.



The USD/INR moved higher following all three events mentioned above. However, it was the combination of India revoking Kashmir autonomy and the surprise RBI rate cut that caused the biggest move – 3.6% in barely two weeks, and break above its long-term down trend line (yellow).8 We forecast a continuation of the uptrend, eventually reaching a target range of 71.50 to 72.50 (red box). It is nearly there already. The range represents the technical retracements (50%-62%) of the entire down move of the top in October 2018 at 74.50 to the low in July at 68.40. It also includes several previous significant highs and lows, which gives that range further credibility. As usual, the timing is tricky to forecast, but we think it will reach the range sometime in Q3. After that move higher, we anticipate that a decline in the USD/INR will resume, in part of a general decline in the dollar against all currencies that we have been forecasting over the last few months.




Our view:

  • We are bearish the rupee against the US dollar over the next few months, driven lower by both negative fundamentals and technical factors. Nevertheless, once the dust settles, and that may take some time, we are bullish India, PM Modi and the rupee.

  • Tactical hedging of INR-denominated expenses (using 3-6 month NDF's) is recommended if the USD/INR climbs to 71.50 - 72.50. Strategic hedging should also be considered, as our long-term (2020 and beyond) view for the US dollar is that it will weaken against all currencies.


1 Bloomberg, August 13, 2019

2 The Washington Post, "Pakistan downgrades diplomatic ties with India over Kashmir", August 7, 2019

3 Bing.com, "News about Trump Offered to Mediate India Pakistan", August 12, 2019

4 Bloomberg, August 7, 2019

5 Ummid.com, "Sales plunge, inventories pile up in India", August 11, 2019

6 NDTV India, "Budget 2019 Updates", July 5, 2019

7 Livemint.com, "The story of budget 2019, explained in 10 charts", July 8, 2019

8 Bloomberg, August 13, 2019

About the Author

Scott Petruska is Chief Currency Strategist and senior advisor for Silicon Valley Bank’s global financial services group, and is based in Boston, MA. He advises clients on currency and interest rate hedging strategies, and helps them with other aspects of global banking. He regularly writes blogs on topics covering the global financial markets, conducts client seminars and webinars, and speaks at regional financial conferences.

Petruska has more than 30 years experience in the currency and interest rate markets, and has lived and worked in Boston, Chicago, New York City, Singapore and Tokyo. Prior to joining SVB in 2009, he worked at several large international financial institutions, including National Westminster Bank, Irving Trust, Bank of New York, State Street Bank and Commerce Bank. He has been an institutional trader, product developer, analyst, salesperson and advisor.

Petruska has been awarded several professional designations, including the CFA (Chartered Financial Analyst), FRM (Financial Risk Manager) and CMT (Certified Market Technician). He earned his undergraduate degree in Finance & Banking from the University of Wisconsin.