USD to INR Forecast 2018: Indian Rupee to Dominate US Dollar?

USD to INR forecast 2018 looks bright as the New Year begins on a rather cautious mood with the markets looking for a trigger to show the direction of swings. While the lot of emerging markets in the course of 2017 was largely one of a herd mentality when paired against the US Dollar, there was a remarkable upside to the Indian Rupee fortunes.

Market analysts set a 2017 year-end peg of 70 for USD/INR, but, the Indian currency was able to shrug off at least 5 percent of the forecast to start the New Year at 63 for USD/INR. Many currencies that define the emerging markets’ benchmark like that of the BRICS (Brazil, Russia, India, China and South Africa) rode the 2017 wave on highs and lows dictated by the US Feds decisions.

Factors that drove USD/INR Lows and Highs

INR had to battle the tide of US interest rate decisions in 2017 in addition to the Bull Run of Oil prices that took many analysts by surprise. In view of the rising energy costs, the export –driven Indian economy had to find a way to absorb the shocks to budgeted overheads.
At intervals during the past year, the price of oil seemed to be on the retreat only to take a surge. The cartel power of OPEC and the new found bromance with energy powerhouse, Russia, also helped to brighten the fortunes of the oil producers.

As the cost of energy spiked, the Indian economy had to absorb the effect, and inadvertently, the INR was caught in the milieu.  However, the strong production rage boosted the Indian economy growth with projections at just under 7 percent to end the year.

USD to INR 2017 Hallmarks

Did GST Impact the US Dollar vs. Indian Rupee Benchmark?

It is thought that moving forward; it is wise to take a look at how you got to the present. GST tariff reviews were carried out in the course of 2017 by the Indian authorities after the criticism that this stifled the local economy. As the economy adjusted to the impact of the GST and the 2016 cash ban, the short term squeeze seemed to have been moderated over the course of 2017.

The Indian economy took on the boost of the fiscal reforms, which impacted the SME sector negatively. On the flip side, the major players continued to churn out goods and services for overseas markets with a remarkable aplomb. Strong exports no doubts aided USD to INR fortunes.

In the course of 2017, the USD/INR performance was marred by heavy falls in the early part of the year with a low of 68.32 to the USD in February 2017. This however considerably pared to 63.8 to the USD as at midnight 31 December 2017.

So, what led to the beyond 6 percent boost in the USD/INR rating in 2017? Here are the factors to consider:

• Strong stock exchange performance led to sustained forex inflows from abroad
• PM Modi’s inflation caps with gas price freeze and reflation steps
• RBI INR/USD hawkish stance

USD to INR Forecast 2018

The Indian economy was projected by IMF to hit a 7.4 percent growth rate in the fiscal April 2017 to March 2018. Will the overall outlook for the INR be any better in 2018 than it was in 2017? Not so clear-cut, I will say.

The US Feds will not likely go on the rampage and do anything drastic in the course of the New Year: many analysts share my view. It should be expected that the USD/INR rate will oscillate between the present 63 and a high of 67.

PM Modi is also facing an election year in 2019, and a buildup towards that is not expected to be anything near radical. If the PM goes with the bears and continues to moderate the impact of the energy price unpredictability, there won’t be anything to rattle the USD to INR position on the local front.

On the global front, any upheaval will have a universal effect that won’t catch the INR napping. All national economies will be affected by a global crisis or the uncertainties in the Middle East and Korean Peninsula.

So, if I am placing a bet, I will go with a stable outlook and a 1 to 5 percent wager room at the height of market volatility.