RBI likely to keep policy rate on hold in December - Scotiabank

The Reserve Bank of India is set to meet tomorrow for its policy rate decision. According to a Scotiabank research report, the Indian central bank is expected to keep its policy rate and the CRR rate on hold at 6 percent and 4 percent, respectively, with a neutral stance. The decision on Wednesday would be aimed at striking a balance between strengthening the country’s economic growth and securing the retail inflation target of 4 percent, plus or minus 2 percent on a durable basis, stated Scotiabank.

The Indian economic growth recovered to 6.3 percent year-on-year in the third quarter from the previous quarter’s 5.7 percent growth, slightly coming below the market projection of 6.4 percent. In the meantime, the nation’s inflation is expected to slightly accelerate in November and December on the base effect after rising to 3.58 percent year-on-year in October from 3.28 percent a month earlier.

The cumulative fiscal deficit at the end of October for FY2017-2018 worsened to 96.1 percent from 91.3 percent the previous month, triggering concerns regarding the fiscal deficit target of 3.2 percent of GDP to be breached. In absolute terms, cumulative fiscal deficit for FY2017-18 rose to INR 5.253 trillion at the end of October.

If the Indian government decides to relax the deficit target of 3.2 percent of GDP for the fiscal year ending March 2018, it will be a drag on the rupee, said Scotiabank. Meanwhile, Fitch Ratings lowered its forecast for India’s economic growth for FY2017-18 and FY2018-19 to 6.7 percent and 7.3 percent, respectively. Also, increasing oil prices might widen the nation’s current account deficit.

“USD/INR is expected to stay in a range of 64-66 in the weeks ahead and to reach 65 at the year-end”, added Scotiabank.

FxWirePro launches Absolute Return Managed Program. For more details, visit http://www.fxwirepro.com/invest