Currency Map:

USD/INR 71.21 71.74 -0.73
EUR/INR 79.01 78.90 0.13
GBP/INR 93.52 92.56 1.03
JPY/INR 65.58 65.46  0.18


Brent Crude closed at USD 64.37 VS prior week close of USD 60.75.

Nifty closed at 11921 vs prior week close of 12056.

10 Year G-SEC Yield closed at 6.67%.

Major developments: It was a volatile trading week for USDINR. The pair traded in the 71.20-71.81 range. It closed at 71.21, registering a loss of 53 ps for USD. GBPINR climbed 1.03% and EURINR closed with marginal gains.

Indian market action was dominated by RBI policy and Govt announcement on launch of bond ETF. In a surprise action, RBI paused rate cuts, though it left policy in accommodative stance. Gradual rise in inflation (now at 4.62%), forced RBI to be cautious, despite entrenched slowdown in growth. RBI Governor said that MPC would like to assess the impact of recent monetary policy decisions and Govt decisions on demand and inflation. While economy has slowed, there is optimism on rabi agri season due to good north east monsoon. Global economy has also stabilised and Crude prices have steadied. Capital inflows is robust and trade deficit is lower. 

RBI Governor said that rate transmission has varied from 44 bps to 135 bps in various segments as against RBI rate cut of 135 bps this year. RBI has upgraded inflation forecast to 4.7- 5.1% for Oct-March period and GDP growth has been revised lower to 5%.

FM announced bond ETF on the lines of equity ETF to deepen corporate access to funds and encourage retail participation for higher interest rates.

Indian IIP and CPI data will be keenly watched, If inflation subdues, it will rekindle hopes of Feb rate cut.                                                                                                 

FII’S nett sold  Rs 917 Cr of Indian Equities in Dec . FII’S have nett bought Rs 82573 Cr of Indian Equities in this calendar Year till date. FII’S have nett bought Rs 1233 Cr of Indian debt securities in Dec. FII’S have nett bought Rs 40977 Cr of Indian debt in this calendar year till date.

Global developments: USD reversed its losses on Friday as US economy added 266 k jobs in Nov with unemployment rate declining to multi decade lows of 3.5%. This has quashed fears of fall in employment rate due to manufacturing contraction. US ISM (non mfrg) and retail sales continue to remain strong. Against this back ground, US Fed meeting is taking place on Tuesday and Wednesday. Fed is likely to maintain status quo.

On the trade front, there is no sign of phase 1 deal, though Dec 15 deadline for higher tariffs on Chinese imports is approaching fast. US could defer this day, to enable successful completion of phase 1 deal. US President continues to give mixed signals on the deal.

ECB meeting could also leave rates unchanged. UK election outcome will be decisive for Pound. Pound has climbed higher on hopes that incumbent Govt will get enough majority to push through Brexit deal.

US retail sales and CPI are other important data events for the week.

Important developments in coming week: Indian IIP, CPI and US CPI, retail sales.

Currency range forecast for coming week:

USDINR: 71-71.60, EURINR: 78.30-79.50, GBPINR: 92.50-95, JPYINR: 65-67.

Suggestion: Cover 1 month USD import payables on dips to 71.10/70.80. USD receivables can be hedged at 71.80. 1 M EURINR payables can be hedged at 78.50/78.25. EURINR receivables can be hedged closer to 79.50. GBPINR receivables hedging can be done closer to 95.    

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