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Data continue to point to strong economic momentum in India. Economists at Commerzbank discuss INR outlook.
Headline inflation has moderated in recent months to around 4% in May. This was helped by lower food and energy prices. It is back to the middle of RBI’s 2-6% inflation target. It provides scope for RBI to stay on hold for the foreseeable future.
There’s no urgency for another hike. Nevertheless, RBI would need to stay vigilant on a potential reversal in food prices. It would need to keep a close eye on the upcoming monsoon season and the underlying cost pressures.
The strong growth picture, stable inflation, and net equity inflows are all contributing to a relatively stable INR.
USD/INR continues to hold within the 81-83 range since the start of the year.
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