INR likely to extend rally amid renewed portfolio inflows, progress in US-China trade talks and stabilizing oil prices: Scotiabank

The Indian rupee is expected to extend its rally amid renewed portfolio inflows, progress in US-China trade talks and stabilizing oil prices. China is also expected to defend the yuan in the run-up to the weeklong National Day holiday, averting market turmoil in the coming sessions, according to the latest research report from Scotiabank.

The Indian government has stepped up efforts to spur economic growth, in addition to the RBI’s monetary easing measures. Scotiabank’s simple analysis suggests the nation may need to stimulate private consumption, boost fixed-asset investment and prompt net exports to revive the economy.

In the meantime, the RBI continues pushing commercial banks to lower lending rates in order to boost credit supply. The State Bank of India (SBI), India’s largest commercial bank, announced on Monday that it will use the repo rate as the external benchmark for its floating rate loans for MSMEs, housing and retail loans.

The abovementioned stimulus measures are expected to prompt foreign investors to turn net buyers of Indian equities and bonds again. Moreover, it will ease trade tensions between the US and India if a trade deal is signed at the UN General Assembly by Indian Prime Minister Narendra Modi and US President Donald Trump, the report added.

"In the meantime, we stay cautious on India’s fiscal conditions that could dent market sentiment in the future. While the Indian government expects a shortfall of about INR1.2 trillion in direct tax collection for current fiscal year that ends March, the nation will refrain from extra borrowings in the second half of the financial year according to Bloomberg," Scotiabank further commented in the report.

Meanwhile, US Treasury Secretary Steven Mnuchin said on Monday that Chinese Vice Premier Liu He will be headed to Washington next week for trade talks. He also clarified that it was actually at the request of the US that a Chinese trade delegation cancelled its plans to visit farms in Montana and Nebraska last Friday. A Chinese trade delegation’s visit to US farms has been rescheduled, according to Mnuchin.