Forwards Indicate Stronger Open; Data Eyed

Rupee forwards indicate a slightly lower open for USD/INR, 1-week forwards have fallen from 72.95 at the cash close yesterday to last trade at 72.83. The greenback slipped again, on track for its longest streak of losses for almost 3 months, so USD/INR is expected to play catch up, but resistance is seen at 72.75.

• All eyes will be on local data today; CPI and industrial production are both due at 1200GMT/1730IST. Inflation especially will be a focus given the uncertain dynamics around price pressures. In December the headline figure fell from around 7% to 4.59%, the rate is expected to moderate further in January to 4.40%.
• There was a Bloomberg sources article doing the rounds today that posited the RBI could be forced to consider raising interest rates if inflation holds above target for a third consecutive quarter. The RBI has a 2%-6% target band that has been exceeded for the previous two quarters, another period above target would mean the RBI has to write to the government to explain why the RBI is missing its goal. A print in line with estimates today could cool reactionary talk of a rate hike.
• Ahead of the RBI meeting on Feb 5 the lower inflation had prompted talk of a rate cut. At the meeting the RBI noted the sharp downward surprise in inflation relative to its projections was largely driven by a drop in food price inflation, which it expects to remain soft moving forward. The banks revised down its CPI inflation projections to an average 5.2% in 4Q fiscal 2021 from 5.8%. The RBI governor in his policy statement noted that the government will announce its inflation target for the next five years by March 2021.
• Industrial production is expected to have fallen 0.2% in December according to median consensus, but there are upside risks to the figure. Manufacturing PMI inched further into expansionary territory in December, non-oil exports (a proxy for industrial activity) rose in the period while negative base effects could also help.