Indian economic recovery likely to strengthen and boost INR - Scotiabank

Economic rebound in India is likely to strengthen and will stimulate the high-yielding Indian rupee despite the increasing worry over the country’s current account deficit and fiscal deficit, noted Scotiabank in a research report. The International Monetary Fund anticipated that the Indian economic growth will pick up this year and in the next, according to IMF’s January update of the World Economic Outlook released recently. Indian is likely to expand 7.4 percent in 2018 and 7.8 percent in 2019.

Foreign investors are expected to pour more money in India’s equity markets to chase the country’s bright growth outlook, even if the nation’s rising CPI inflation might be a drag on bond portfolio inflows from time to time. The sound inflows in capital account might ease market concern regarding India’s broadening trade deficit and current account deficit.

Moreover, India’s stressed loans consisting of non-performing loans and restructured loans slowed to 0.4 percent to INR 9.46 trillion at the end of the July-September quarter from the earlier three months. In the meantime, India’s GST collection for December increased to INR 867.03bn from its lowest of INR 808.08bn in November. It is likely to bring some relief to India’s government as the RBI is stated to have declined the central government’s demand for more dividend, stated Scotiabank.

India’s rising foreign reserves are able to decelerate the INR’s pace of appreciation while providing a buffer to the local currency. The nation’s foreign currency stockpile rose to USD 414.78 billion in the week ended 19 January from USD 413.83 billion a week ago, up for the sixth consecutive week.

“We maintain our short USD/INR position with a target of 60 amid signs of India’s economic recovery, while awaiting the presentation of Union Budget 2018 set for 1 February and February RBI meeting due 7 February”, added Scotiabank.

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