USD/INR likely to see upside potential on the back of India’s economic recovery, says Scotiabank

The USD/INR currency pair is expected to face some upside potential on the back of India’s economic recovery that is expected to firm up. India’s increasing foreign reserves are able to provide a buffer to the INR against external turmoil. The country’s foreign currency stockpile rose to USD417.79 billion in the week ended January 26 from USD414.79 billion a week ago, up for a seventh week in a row, according to the latest report from Scotiabank.

The RBI left its policy rate and CRR unchanged at 6.00 percent and 4.00 percent respectively while keeping a neutral stance on its monetary policy on Wednesday. Five members of the panel voted to keep rates unchanged, while Michael Patra, executive director at the central bank, wanted to raise the policy rate by 25 bps.

"The decision was aimed at striking a balance between bolstering the nation’s economic growth and securing the medium-term CPI inflation target of 4 percent ± 2 percent on a durable basis in our opinion", the report added.

The RBI’s future calls for rate direction would be data-driven. It estimated India’s CPI inflation for FY2018-19 in a range of 5.1-5.6 percent in H1 and 4.5-4.6 percent in H2 with risks tilted to the upside.

Meanwhile, the central bank projected an acceleration in economic growth to 7.2 percent from a level of 6.6 percent in the current fiscal year by taking into account factors including stabilizing GST implementation, early signs of revival in investment demand, ongoing PSU bank recapitalization and strengthening exports.

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