The Reserve Bank of India (RBI) is widely expected to hike rates at its meeting ending on June 8, the question is by how much? Economists at TD Securities expect the RBI to hike 50 bp as it attempts to get back on the curve. Therefore, the Indian rupee is set to find some support from a 50 bp move, but high oil prices act as a headwind.
“We think the tide has turned. After having maintained a dovish stance for a prolonged period, April saw a shift in tone followed by a 40bp inter-meeting hike in May. We expect the RBI to hike its policy repo rate by 50bp to 4.90% while maintaining an accommodative stance”
“INR is likely to gain some support from a 50bp hike from the RBI but the currency is also being buffeted by higher oil prices, which is exacerbating India's oil import bill and weighing on the country's current account balance at a time when equity portfolio outflows have intensified.”
“The weakness in the USD over recent weeks has made the job easier for the RBI, but we still expect a weaker bias in the currency in the weeks and months ahead as India's underlying basic balance position (CA+FDI+portfolio flows) remains under pressure, with INR likely to underperform its peers.”
See – RBI Preview: Forecasts from four major banks, strong rate hike
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