USD/INR likely to trade towards 65 level with support at 64, says Scotiabank

The USD/INR currency pair is expected to trade towards the 65 level with the 64 support, but the pair will be buffered against a sharp and persistent depreciation given the nation’s large foreign reserves that rose to a record high of USD400.73 billion as of September 8.

In addition, persistent net direct investment and portfolio investment inflows could help finance India’s continued current account deficit that widened to a four-year high of USD14.3 billion, or 2.4 percent of GDP, in the June quarter. It could be partly attributed to gold imports that picked up ahead of the GST rollout starting July 1.

Finance minister Arun Jaitley and ministers discussed a broad framework to boost the economy late Tuesday evening. A package of measures could be unveiled soon, aimed at speeding up growth, generating employment, lifting exports and stepping up investment in infrastructure, according to local media The Economic Times. Prime Minister Narendra Modi will take a final decision on the measures.

On Thursday, the ET Now television channel tweeted that the government was considering a stimulus package of INR400 billion (USD6.2 billion or 0.23 percent of GDP) and cited sources saying PM Modi was likely to relax the deficit target of 3.2 percent of GDP for the fiscal year ending in March 2018.

"Going forward, we stay cautious on developments in global liquidity conditions including the stance of the ECB, US macro data, debt ceiling matter and tax reform as well as geopolitical situation. If the US passes tax reform later this year, it will certainly boost the USD across the board including the INR at that time," Scotiabank commented in its latest research report.

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