USD/INR likely to face downside risks in wake of U.S.-China trade disputes, says Scotiabank

The USD/INR currency pair is expected to face downside risks while keeping a close eye on uncertainty surrounding US-China trade disputes that are still expected to be resolved through dialogue but could dampen market sentiment intermittently during the negotiating period, according to the latest report from Scotiabank.

The RBI on Thursday released its first bi-monthly monetary policy statement of FY2018-19, aimed at "achieving the medium-term target for CPI inflation of 4 percent ±2 percent (on a durable basis) and supporting growth".

In the statement released yesterday, the RBI said it is worried about deficient monsoon in the June-September period that may significantly impact food prices and deterioration in public finances that risks crowding out private financing and investment. However, we are a bit more optimistic on the back of following developments.

Indian stocks had advanced before the release of the April monetary policy statement on hopes for the central bank softening its stance. Meanwhile, the new rules allowing commercial banks to spread their bond trading losses will further improve the sentiment among Indian bond investors, together with easing CPI inflation, a possible debt ceiling rise and a lower borrowing plan in the first half of FY2018-19.

"We think the stance of the RBI was relatively dovish and expect a sustained rally in the bond market as the central bank lowered its inflation projections," the report added.

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