USD/INR Rebounds on Narrower Current Deficit and US Tapering Fears Subsiding

The currency has rebounded boosted by the lower than expected deficit and the fears of the US Fed tapering beginning to disappear. The RBI probably released the deficit figures early (they are usually released on Friday) in order to reverse the losing trend of the currency after it hit an all time low. The INR is trading at 60.16 to the USD.

The Reserve Bank of India (RBI) released figures showing a lower than expected current account deficit. The deficit was $18.1 billion in the first quarter of the year, which compared with the $31.9 billion of the last quarter of 2012 shows a considerable improvement. Expectations around this quarter deficit were in the $21 billion range, so a less than expected number is positive for the Rupee.

PM Manmohan Singh is expected to push through reforms that will ease foreign direct investment to enter India, but those reforms have been a long time coming and investors are looking for opportunities elsewhere. This has hurt the Indian economy who must find a way to attract FDI and stimulate the internal economy. This can be difficult with a weaker currency as import prices can lead to higher inflation.

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza