(04 SEPTEMBER 2018)DAILY MARKET BRIEF 2:Indian economy strong, rupee soft

Asia’s fastest growing economy, India, is in good shape. Q2’s GDP grew 8.2%, its highest pace since Q1 2015. 2018’s GDP could end up rising 7.5%, in line with the Reserve Bank of India forecasts. The Indian economy remains less dependent on external demand for growth. However, weakness in the Indian rupee weighs on the current account balance, with growing import costs and rising oil prices since the beginning of the year.

Depreciating by 12% against the greenback since the beginning of the year and trading above the 70 level, USD/INR is expected to continue its rise. The US Federal Reserve’s normalization cycle along with RBI’s moderation of its interventions in foreign exchange are pushing the USD/INR up. The monetary policy meeting on 5 October should see a 0.25% interest rate hike. Currently at 71.32, USD/INR is expected to rise, approaching the 71.40 range in the short-term.