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The USD/INR currency pair is expected to trade lower towards the 73 level amid a broad dollar weakness and the RBI’s liquidity injection through open market operations (OMOs), according to the latest research report from Scotiabank.
The central bank said last Friday that it will purchase INR400 billion worth of government bonds under OMOs in November to inject additional liquidity to the banking system, in addition to pumping INR360 billion of funds via OMO purchases in October.
The move will help ease cash shortage in the banking system and stabilize local debt markets to some extent, bringing a temporary relief to the high-yielding INR amid lower local government bond yields.
India’s fiscal deficit for the April-September period came in at INR5.95 trillion or 95.3 percent of INR6.24 trillion estimated in FY2018-19 Union Budget, climbing from 94.7 percent as at the end of August.
It has raised concerns over India’s fiscal slippage ahead of the 2019 General Election, although the government has pledged to trim the budget deficit to 3.3 percent of GDP this fiscal year. India met an upwardly revised fiscal deficit target of 3.5 percent of GDP in FY2017-18.
"We stay cautious as India’s foreign reserves shrank further to USD393.52 billion in the week ended October 19 from USD394.47 billion a week ago. The nation’s foreign currency stockpile would be even lower if taking into account the RBI’s shrinking net long FX forwards/futures positions," the report added.
