USD/INR likely to rise towards 67.0 from late April-May on hopes of Fed’s rising June hike intentions, says Scotiabank

USD/INR is expected to consolidate for a while after strengthening substantially since the BJP’s victory while staying with our long INR position funded with the low-yielding SGD and TWD. USD/INR is likely to rise towards 67.0 from late April to May as the United States Federal Reserve may intend to talk up the chance of a June rate hike at that time.

In the medium-term, the INR is expected to continue benefitting from the Union Budget with fiscal prudence, the Reserve Bank of India’s (RBI) neutral monetary policy stance and further economic reforms. Finance minister Arun Jaitley has said that legislation related to the Goods and Services Tax (GST) will have to be passed in the ongoing budget session that will end on April 12 with the objective of rolling out the GST from July 1, Scotiabank reported.

Reuters and Bloomberg reported Thursday that India’s finance ministry will hold a meeting with bankers today to discuss setting up a new monetary policy tool (Standing Deposit Facility) to manage excess liquidity.

The tool was proposed by the Urjit Patil-led panel reviewing monetary policy in 2014 to absorb surplus liquidity from the banking system by the RBI without the need for collateral. It is expected to provide support to USD/INR FX forward points.

"We stay vigilant on market sentiment as the US House of Representatives postponed the vote on the American Health Care Act to Friday. Risk-aversion will intensify if the House votes not to pass the Act as it will raise market doubts about the Trump team’s capability to push forward reforms and release pro-growth policies," the report said.