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The USD/INR is expected to trade in a range of 70.5-72.0 in the near term by considering the nation’s massive foreign currency stockpile, according to the latest research report from Scotiabank.
India is set to unveil the Union Budget for FY2020-21 on Saturday, possibly to widen its budget deficit to 3.8 percent of GDP in the current fiscal year from 3.3 percent. On January 9, the television channel ET Now reported the RBI has told the government that a slippage of 50 bp on the country’s fiscal deficit target of 3.3 percent of GDP for FY2019-20 is not a concern.
The Economic Times cited a senior official as saying on 8 January that India’s budget deficit could widen to 3.8 percent of GDP in the current fiscal year, breaching a target of 3.3 percent. The RBI is expected to remain on an extended pause in the rate-cutting cycle and to leave its policy rate unchanged at 5.15 percent next Thursday (February 6), with India’s CPI inflation surging to an over five-year high of 7.35 percent y/y in December.
Meanwhile, the Reserve Bank of India (RBI) is expected to conduct more Operation Twist to flatten the government bond yield curve, reining in inflation with elevated short-term interest rates while lowering long-term sovereign funding costs amid hovering worries over the nation’s fiscal slippage.
Moreover, the Indian regulators need to improve the monetary policy transmission mechanism after four rounds of Operation Twist auctioned on December 23, December 30, January 6 and January 23 respectively. India’s bank lending growth slowed to 7.6 percent in January from 14.8 percent the same period a year ago, a drag on the nation’s economic growth.
"We still like the rupee carry trade funded with the dollar and would like to sell USD/INR at 71.5 now with a target of 70.5 and a stop of 72.2. The World Health Organization (WHO) on Thursday declared an international public health emergency over the 2019-nCoV outbreak, but said there was "no reason" to restrict travel or trade with China," Scotiabank further commented in the report.
