Citigroup’s Chief India Economist Samiran Chakraborty said in a client note that the Indian rupee remains exposed to downside risks amid easing likelihood of Indian sovereign bonds’ inclusion on global indices this year.

Key quotes

“We had expected $30 billion inflows on the back of global bond index inclusion in our baseline balance of payment estimate of $49 billion for FY23.”

“With lesser likelihood of bond index inclusion happening this year, BoP surplus could be substantially lower and can in fact turn into deficit if oil prices stay at a current level rather than our base case of averaging $65/bbl.”

“The economy may struggle to find enough offsetting foreign inflows in view of higher-than-expected energy prices and expectations of a pickup in non-energy imports, especially with global financial conditions expected to tighten.”

“If the Reserve Bank of India maintains its volatility-dampener role during times of the rupee’s weakness, the local unit will likely see an orderly depreciation in the next financial year, without assuming a sharp dollar decline and fall in oil prices.”

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