INR: Outperformer, but a sharp decline in the Modi factor is a key risk – RBC CM

By FXStreet FXStreet (Delhi) – Research Team at RBC Capital Markets, expects INR to be one of the outperformers in the Asian region.

Key Quotes

“India is among the better positioned in Asia to benefit from lower oil prices and is also relatively insulated from China’s economic growth slowdown (from a trade perspective), with exports to China accounting for just ~5% of India’s total exports in 2014. We think the bigger issue for INR watchers is the progress of structural reforms.”

“Reforms on tax, labor, and land are all crucial if India is to attract FDI and remove key obstacles to doing business in India. All three reform bills have run into difficulty since August due to the BJP’s minority in the Upper House. RBI is doing its part to help, announcing a range of measures to liberalize financial markets. For example, it increased the US$30bn limit for foreign investment in government bonds by US$18bn (by March 2018 in stages; currently fully utilized and up to 5% of outstanding). In the meantime, the coming Pay Commission Report, where employee salaries are linked to performance, could help to lift domestic demand and productivity meaningfully.”

“The odds of further cuts in 2016 will be contingent on CPI inflation …read more

Source:: FX Street