Category Bonds

USD to INR Price and Forecast is expected to go up in times to come. This is very important for you to hedge accordingly irrespective of the nature of your profession.

Please find the current USD to INR Price and forecast

Forecast by 2030 is of 100+.

Here INR is the Indian rupee and our currency.

On the other hand, we have US dollar which is labelled as reserve currency of the world. Most of the trade in world happens in US$ and its price movement, majorly measured through Dollar Index decides the strength and weakness in major commodities like Nickel, Crude, Gold, Natural Gas, etc.

There are innumerable factors that influences the conversion rate of a currency like:

1. Macroeconomic factors

Higher rank in terms of strength and efficacy of a country’s institutions and policy makers leads to lower yields. Effectiveness of government and its policy, its accountability and strength of the legal system—are qualitative measures of the degree to which a respective sovereign borrower can be expected to implement policies and measures that are consistent with sound management of the economy in general and of its debt obligations.

Health of a currency is directly proportional to the macroeconomic factors of a country. In the case of India, the reforms which started in 1991 are supplemented by key reforms like GST, Demonetization, NCLT, RERA, Jan Dhan, etc. which will be long term beneficial for India’s growth.

2. Inflation

India had significantly higher inflation in the last decade compared to US. It was hovering around 4-7% where in it was around 1-2% in US. Even now and in times to come, it is expected that inflation differential in between India and US will be around 5%. USD to INR Price and Forecast is expected to go up it by at-least the differential amount.

3. Interest Rates

When interest rates are kept at zero by US Fed, RBI in India has cut down the repo rate by 25 basis points to 5.15% from 5.75% in Aug’21. In the same line, the reverse repo rate was also reduced to 4.9% from 5.5%. This huge difference in interest rates speaks for two economies and hints at depreciating rupee in long term.

Our higher interest rates as compared to western world puts pressure on our currency.

4. Public Debt

As of Marcg’21, India’s external debt was placed at US$ 570.0 billion, recording an increase of US$ 11.5 billion over its level at end-March’20. The external debt to GDP ratio increased to 21.1 per cent at end-March 2021 from 20.6 per cent at end-March 2020.

Valuation loss due to the depreciation of the US dollar against Indian rupee and major currencies such as euro and pound sterling was placed at US$ 6.8 billion. Excluding the valuation effect, the increase in external debt would have been US$ 4.7 billion instead of US$ 11.5 billion at end-March 2021 over end-March 2020.

With the plans of government for this decade, public debt is expected to rise and will exert pressure on INR valuations vs US dollar.

5. Demand and Supply

Indian money is in demand not only from the domestic market (for any transaction), but also from foreign money that needs to enter the country (exchanging dollars or other currencies into rupees). If there is remittance, it is also in demand (earnings outside India flowing back through people working there, or foreign operations of Indian companies, or exports).

On the other hand, supply happens from RBI printing the money and when currency is leaving the country and being exchanged for dollars. It is also supplied when we import things as the price has to be paid in US$.

Over a long period of time, this equation will lead to net flow of dollar outside India at least till 2030 and will lead to INR depreciation. One of the major factor here is the import of Crude which is expected to double from current capacity by 2030-35 and will lead to pressure on INR.

6. Economic Growth

India is expected to grow at 10% this financial year, 2021-22. With better economic growth, there are investment avenues generated in the country which attracts foreign capital. Also, higher GDP growth lead to lower yields. First, government tax revenue increases leading to lower deficit and debt levels and gives better financial resources to service debt. Second, as we attract more foreign capital investment, which increases our US Dollar reserves, it allows us to service our debt easily.

7. Current and Fiscal Account Deficit

In the case of India, both of these are negative. Currently, fiscal deficit is around 6%. India’s current account balance recorded a deficit of $8.1 billion (1% of GDP) in the quarter ended March 2021 (Q4FY21) on the back of a higher trade deficit and lower net invisible receipts. Higher fiscal  and current account deficit mean higher yields and pressure on currency.

8. Central Bank Intervention depending upon whether it’s a free market currency or fixed.

India’s currency exchange is free and market driven. However from time to time, there is intervention by central bank to absorb shocks but they don’t interfere with the free market dynamics and policies. Our currency has depreciated from 45 in 2011 to 75 in 2021, close to 67% in 10 years and the trend is expected to continue. 

With above factors in consideration and most importantly, with no current plan by Indian Government to position INR in international trade as a big reserve currency for other countries, which could have protected its down side in case of depreciation, our prediction for USD to INR is 100+ by 2030.

For more updates on Forex and Bonds, Please find the link below :

More updates

RBI came out with its policy on 7’th April and kept the key interest rate unchanged.The highlight of the monetary meeting and policy is dovish stance by Indian central bank too, following its international peers.

The Repo rate stands at 4% and reverse repo at 3.35%.

[ Repo rate is the rate at which RBI lends to commercial banks and Reverse repo rate is the rate at which banks lend to RBI].

The key takeaways were:

. The dovish stance by central bank saying that they are in line with the target for higher growth with inflation target of 4%, plus minus 2% for coming few years.

. They are committed to ensure that there is ample liquidity in system so that corporates and any entity who is worthy of credit gets it. This will ensure that key macros like credit growth, core sector growth, lower unemployment, etc. remains intact.

. GDP estimates for FY’22 is kept at 10.5%. This is very conservative from my view and I think India is on its path to achieve a credit growth of 13-15% in this financial year. Even IMF this week up the global growth forecast to 6% and estimated India’s growth at 12.5%.

. The central bank announced that they will be buying government securities worth 1 lakh crore from secondary market in Apri-June’21 quarter.

This along with other factors like higher trade deficit of close to $15 billion in March’21 and Covid 19 concerns took USDINR to 74.5 from 73.5 in a day. It’s the biggest fall which was seen in Rupee in last 20 months.

. Above announcements also soothed the bond market and 10-year G-Secs cooled down from a high of 6.17% to 6.08%.

If we try to decode above announcements for our bond/debt portfolio, following will be the key takeaways:

. Interest rates on 10-year G-secs will be around 6% and RBI participation will mean that interest rate rise will be checked.

. Thus, a long-term( 3-10 years) bond portfolio will give a return of around 6-7% for one year, if excess risks are not taken.

. Hence, for fresh investments, looking at the credit cycle, investments can be made in ultra-short term or liquid funds which will fetch around 5.5-6.8 % return for one year.

. Floating rate bonds can also be considered, which looking at current juncture and the range of interest rates, can give an average of 8% returns.

In India, starting 2020, interest rates have taken a nosedive to promote growth and investment. This is done across the world by central banks and they all have taken a accommodative stance. This calls for an analysis of current scenario in India for debt investment and apt instruments for same.

RBI in its meeting in Feb’21 has kept its benchmark repurchase rate at 4%. Reverse repo stands at 3.35%.

This means that interest rate at which most of the debt changes hand in our country is at very low levels compared to the last many years. Be it a home loan, a personal loan, the average interests have come down and so is the case with the Investor’s return on debt too.

If we talk about AAA or AA category bond paper, it is usually coming with an interest coupon of 4-5%. Of course as we go lower in the bond rating, return will be high but so will be the risk.

Looking at the budget in Feb’21, as the borrowing plan of government has increased by almost 100%, it will ensure that the 10 year interest rate for G-Sec remains and inches up from the level of 5.9-6.2%.

Hence, looking at the above facts, this is a good time to invest in floating rate funds/Bonds to shield us from a rising interest rate scenario in the future. Investors can also look at ultra short term funds having a maturity of up to 6 months as this dilutes, both the credit and interest rate risk.