USD/INR likely to trade around 64.00 mark with support of 63.5 for now, says Scotiabank

The USD/INR currency pair is expected to trade around the 64.00 mark, holding on to a support of 63.5 for now after the country’s economic growth unexpectedly slowed to 5.7 percent y/y in the April-June quarter, the slowest pace since Q1 2014, Scotiabank reported.

Exports advanced 1.2 percent y/y in real terms in the period, contributing 0.25 percentage points only to the nation’s real GDP expansion. Meanwhile, the contribution from private consumption came in at 3.56 percentage points, according to data from Ministry of Statistics and Programme Implementation. India’s slower economic growth has raised market hopes for further monetary easing.

The nation sold INR49.10 billion of government debt quota to FIIs on Monday, compared to INR66.63 billion of total bids received. Indian companies have lined up IPOs worth INR200 billion in the coming months to fund their business expansion and meet working capital requirements. Thus, foreign investors will pour funds into local bond and equity markets again, bolstering the INR given the nation’s solid fundamentals and the prospect of further reforms.

In the meantime, an excessive strength of the INR is not favorable, even though the country doesn't rely on an export-driven growth strategy. The government will need to shore up exports to regain the crown of the fastest growing major economy in the world since the GST rollout from July 1, 2017, may weigh on private consumption. It comes as no surprise that India’s foreign reserves rose to a record high of USD394.55 billion as of August 25.

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