USD/INR likely to trade in 64-65 range given the nation’s sound fundamentals, steady commitment to reforms: Scotiabank

USD/INR is expected to trade in a range of 64-65 for now given the nation’s sound fundamentals, continued commitment to reforms and hovering external uncertainty. Technically, the 64 mark remains a critical support for the currency pair at current stage as rising foreign reserves could slow the pace of appreciation in the INR, Scotiabank reported.

The INR has slid 0.4 percent this month, underperforming all regional peers. It comes as no surprise to us. The nation’s foreign reserves rose to a record high of USD379.31 billion as of May 19 from USD375.27 billion a week ago. In the meantime, the central bank has piled up its long positions in FX forwards/futures to USD21.1 billion as at end-March, avoiding pumping liquidity into the banking system filled with surplus cash.

Further, the INR’s strength had spurred the government’s concerns. Arvind Subramanian, Chief Economic Advisor to Ministry of Finance, said on April 28 that FX competitiveness is critical for growth and called for a rupee exchange rate to promote exports.

India’s fundamentals remain sound. The World Bank on Monday projected India’s economy to expand by 7.2 percent this financial year on the benefits of reforms. The Union Cabinet scrapped Foreign Investment Promotion Board (FIPB) last Wednesday in a move to reduce red tape in government and facilitate ease of doing business. The nation remains on track to roll out the GST from July 1.

Meanwhile, on Monday, the IMD said conditions are favourable for the onset of Southwest Monsoon in Kerala by Tuesday, May 30, which was echoed by the private weather agency Skymet. The IMD will be releasing a more detailed forecast early next month on the progress of the monsoon. Normal or above-normal monsoon rainfall would keep the nation’s retail inflation benign and support the INR, the report added