INR likely to remain resilient; eyes on Modi-Trump meeting, says Scotiabank

The Indian rupee is expected to remain resilient and the Federal Reserve to maintain its dovish tone, according to the latest research report from Scotiabank.

The INR has been outperforming most regional peers since China confirmed human-to-human transmission of COVID-19 on January 20, 2020, largely due to the nation’s contained coronavirus situation, massive foreign reserves and continued portfolio inflows.

As of February 14, India’s foreign reserves rose to a fresh record high of USD 476.09bn from USD 473.00bn a week ago.

The RBI remains concerned about the slower pace of growth in Indian economy amid uncertain macroeconomic data, according to the minutes of the February policy meeting released last Thursday.

RBI Governor Shaktikanta Das said at the February policy meeting that it would be prudent to continue the focus on growth in the context of the expected moderation in inflation and that there is policy space that needs to be timed optimally and opportunistically to maximize its impact on growth barring the intensification of global risks, the report added,

The RBI received bids worth nearly eight times of INR 250bn on offer for its first long-term repo operation (LTRO) of three-year maturity conducted on February 17, allotting INR 250.35bn to these banks on a pro-rata basis. On Monday, there will be another LTRO of INR 250bn for one-year tenor.

The RBI’s ECB-like move is expected to prompt foreign investors to pour more funds into India’s equity and bond markets, supportive of the INR in general.

In addition, Governor Shaktikanta Das told the Press Trust of India on Friday that the Indian central bank is holding discussions with institutions for inclusion of government bonds in global indices.

Foreign portfolio investors (FPI) stayed bullish on Indian markets, investing a net sum of INR 107.50bn (USD bn) into equities and INR 123.52bn into the debt segment, taking the total net investment to INR 231.02bn (USD 3.22bn) in the period of February 3-20.

Apart from that, it has been widely reported that France’s Groupe ADP will buy 49% stake in India’s GMR Airports for INR 107.8bn (EUR 1.39bn).

Indian Prime Minister Narendra Modi and US President Donald Trump are likely to make a commitment to a comprehensive Free Trade Agreement (FTA), although no trade deal will be signed during Trump's first visit to India set for February 24-25.

Meanwhile, G20 finance ministers and central banks said in a communique released Sunday after a two-day meeting that monetary policy should continue to support economic activity and ensure price stability and that fiscal policy should be flexible and growth-friendly while ensuring debt as a share of GDP is on a sustainable path, Scotiabank further noted in the report.