Rupee @73: RBI likely to turn hawkish to stem the slide

NEW DELHI: On Wednesday, the rupee breached the psychological 73-mark against the US buck to hit a brand new low of 73.34 in early trading.

Strong call for for the American currency from importers, concerns of fears of emerging fiscal deficit and capital outflows basically weighed at the domestic currency. Investors also remained concerned over sustained overseas capital outflows and soaring crude oil costs that crossed the $85 per barrel.

Amid the rout in rupee, the Reserve Bank of India (RBI) starts its three- day meeting on bi-monthly financial policy. The Street is expecting from the central bank a third back-to-back repo rate hike as inflation is predicted to accelerate further due to upper crude costs and the weak spot in rupee.

After two successive hikes, the repo rate recently stands at 6.50 per cent.

"With petrol and diesel prices moving up, there is a strong expectation that inflation will also move up. So, they (RBI) may take a pre-emptive action. I feel there will be an increase of 25 basis points in the repo rate," Union Bank of India managing director and chief govt Rajkiran Rai G mentioned.

A section of the market is also expecting some drastic measures with the RBI and the federal government stepping in to arrest to any extent further slide in the rupee. One of the stairs could be the announcement of an NRI bond at an exquisite rate. The 2d option could be curbs on banks and different traders in the forex market that may discourage speculation against the rupee. Such an way was taken through the central bank right through the rupee crisis in 2013 and economists predict a equivalent motion this time too.

Bankers also be expecting RBI to take a more hawkish stance, if certainly the repo rate is hiked another time.

The SBI, in its research document, Ecowrap, mentioned the RBI must carry the policy repo rate a minimum of 25 basis issues (bps) to arrest the rupee's fall.

"We rule out a hike of 50 basis points, as it may spook the market. However, there is a probability of change in neutral stance too, as three successive rate hikes with a neutral stance could contradict RBI message," the research document mentioned.

Reports through Kotak Economic Research and Morgan Stanley have also predicted a 25 bps rate hike.

(With company inputs)
Rupee @73: RBI likely to turn hawkish to stem the slide Rupee @73: RBI likely to turn hawkish to stem the slide Reviewed by Kailash on October 03, 2018 Rating: 5
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