USD/INR likely to settle in the range of 64-65 in the coming term

The USD/INR currency pair is between 64-65 in the near term according to the forecasts by Commerzbank.Q2 2017 current account deficit is on the peak in 4yrs to USD14.3bn (2.4% of GDP)

The headline appears quite shocking but the details give the positive tone. These include the blowout mainly due to rise in gold imports which is in front of GST roll-out in July to over USD11 billion from bottom USD4 billion a yr ago. The trade deficit consequently reached at the peak over USD41 billion from under USD30 billion in Q1 but it should be moderate for the entire year.

Secondly, services continued to post positive inflows at USD18.2 billion and higher than a year ago, net foreign direct investment (FDI) which is double from a year ago to a healthy USD7.2 billion. This is a positive news for INR in that the funding is less speculative and longer term in nature and net portfolio inflows remained robust at over USD12bn, particularly to the debt market.

If global liquidity is withdrawn at a higher pace this risk needs to be watched. In other words, we don't need twin deficit that was concern of 2013