Indian rupee likely to face continued headwinds - Scotiabank

The Indian rupee is expected to face continued headwinds in the coming future, noted Scotiabank in a research report. It has depreciated continuously amidst portfolio outflows, falling 1.6 percent in June. The data from NSDL indicated that foreign investors pulled out a net of USD 377 million and USD 1.62 billion of Indian equity and bond markets, respectively, last month.

Indian cumulative fiscal deficit rose to INR 3.45 trillion or 55.3 percent of the budgeted target of INR 6.24 trillion in the initial two months of FY2018-2019, as per data released by the Controller General of Accounts recently. It rose from 24.3 percent as at the end of April. The country aims to reduce the fiscal deficit to 3.3 percent of GDP this year, according to the latest Union Budget, after meeting an upwardly revised fiscal deficit target of 3.5 percent of GDP in FY2017-2018.

Indian foreign reserves are expected to contract further going forward with the aim of smoothing extreme volatility in the local FX market. In the week ended 22 June, the country’s foreign currency stockpile stretched its losses, falling to USD 407.82 billion from USD 410.07 billion one week ago.

“We remain bearish on the INR and expect USD/INR to rally through the August 2013 high of 68.845 and to trade higher towards the 70 psychological resistance level, particularly if taking into account escalating concerns over India’s trade deficit amid bouncing oil prices and a potential global trade war”, added Scotiabank.

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