Goldman Sachs warns INR could hit 95 against USD
What's the story
Goldman Sachs has warned that the Indian rupee could fall to 95 against the US dollar in a year. The prediction is based on the potential fallout from the ongoing conflict in Iran. Santanu Sengupta, Chief Economist for India at Goldman Sachs, said that "the rupee remains under pressure" due to a widening current account deficit.
Inflation concerns
RBI may have to tighten monetary policy
Sengupta also warned that if rising oil prices and a weakening rupee start affecting consumer prices, the Reserve Bank of India (RBI) may have to tighten its monetary policy. He said, "That question will come up further down the line rather than now." The Indian rupee was trading at 92.4375 against the dollar today, close to its record low close of 92.4575 a dollar last Friday.
Economic outlook
Goldman Sachs revises India's growth forecast
Goldman Sachs has revised its growth forecast for India this year to 6.5% from 7%. The firm has also raised its inflation estimate by 30 basis points. It expects the current account deficit to widen by 0.8% to 1.2% of gross domestic product (GDP) this year from a projected level in 2025.
Policy measures
RBI may provide liquidity support
Sengupta said that while the Indian government is using fiscal policy to shield the economy from energy shocks, the RBI may not have to act immediately. However, it could provide liquidity support depending on how long the conflict lasts. The RBI kept interest rates unchanged in February with Governor Sanjay Malhotra hinting at a prolonged period of monetary policy stability.
Consumer protection
India imports 85% of its fertilizer needs
Sengupta also highlighted that the government could protect consumers from rising prices by cutting fuel excise duties or increasing fertilizer subsidies. India imports nearly 85% of its fertilizer needs. He said, "It is a critical sector," and predicted that, "the government, in our view, will do all it takes to really protect that sector from full inflation."