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MOSL: ECOSCOPE | 2QCY19-India’s Quarterly Economic Outlook; BoP surplus in FY20 to limit INR weakening bias

ECOSCOPE | 2QCY19: India’s Quarterly Economic Outlook; BoP surplus in FY20 to limit INR weakening bias

 

• When compared with our , we have revised down our FY20 growth forecasts slightly to 6.8%, but have maintained inflation forecasts (at 3.8%) with lower current account deficit (2.2% of GDP) expectations.
• The RBI’s recent policy to inject INR liquidity via USD buying limits the weakening bias against the INR. Thus, while we have revised our INR forecasts from 73.1 to 71.8 against the USD now, we believe it could perform even better.
• Although, we expect growth to be weaker than the RBI’s projections (of 7.2%), inflation could be higher than the RBI’s projections (of 3.3%), which makes us believe that there is very limited room for further rate cut(s) in FY20.
• Moreover, the RBI’s policy to use INR/USD swap to inject durable INR liquidity as against buying government securities through open market operations (OMOs), could put upward pressure on the long-end of the sovereign bond curve and the INR exchange rate against the USD.