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The USD/INR currency pair is expected to consolidate around 71 for now, on the back of the RBI smoothing excessive rupee movements with fluctuating foreign reserves. In the medium term, the INR will likely recoup some of its recent losses, according to the latest research report from Scotiabank.
A synchronized monetary easing will keep prompting overseas investors to chase the high-yielding assets in the world, as long as the US and China refrain from intensifying the trade tensions once again.
The Reserve Bank of India (RBI) cut its policy rate by a rare 35 bp to 5.40 percent on Wednesday afternoon, marking a fourth rate cut in a row this year. It was aimed at spurring India’s economic growth amid gloomy global trade outlook.
The Indian central bank will likely deliver a fifth rate reduction in the October-December quarter if the Fed lowers its benchmark interest rate again next month, although RBI Governor Shaktikanta Das said on Wednesday that a half-point reduction would have been "excessive", the report added.
In the near term, foreign investors could refrain from pouring funds into Indian equity and bond markets amid uncertainty surrounding India’s latest Kashmir move.
"In addition, China stabilizing the yuan exchange rate has dispelled market panic about competitive devaluation and improved risk sentiment in the region. We expect the PBoC to set USD/CNY fixing below 7.0 in the coming weeks, unless the Trump administration escalates its trade disputes with China again," Scotiabank further commented in the report.
