INR/CNY Outlook:
Bearish, as the INR is currently below its recent average and near its recent lows, influenced by persistent negative economic factors.
Key drivers:
• Rate gap: The Reserve Bank of India (RBI) has maintained a higher interest rate compared to the People's Bank of China (PBOC), which influences currency valuation.
• Risk/commodities: A recent rise in crude oil prices adds pressure on the INR, given India's heavy reliance on oil imports.
• One macro factor: Ongoing Foreign Portfolio Investment (FPI) outflows reflect shifts in global risk appetite, adversely impacting the INR's value.
Range:
The INR/CNY is expected to drift within its recent range as the INR struggles to regain strength.
What could change it:
• Upside risk: A significant increase in foreign investments spurred by improved economic conditions in India.
• Downside risk: Continued geopolitical tensions or further FPI outflows could exacerbate INR depreciation.