USD/INR likely to track oil prices in near-term; RBI seen on hold till H1 2019: Commerzbank

The USD/INR currency pair is expected to track oil prices in the near-term, with the Reserve Bank of India (RBI) seen to maintain its policy stance and keep policy rate on hold into H1 2019, given the upcoming federal election in April-May 2019, according to the latest research report from Commerzbank.

The RBI held benchmark interest rate unchanged at 6.50 percent at its monetary policy meeting held yesterday and maintained its “calibrated tightening” stance as expected. All six members voted for a rate pause.

Further, RBI revised down the inflation forecast for fiscal year (FY) H2 2019 to 2.7-3.2 percent from 3.9 -4.5 percent. On the economy, the central bank maintained the GDP forecast for FY2019 at 7.4 percent.

Overall, the statement leaned towards a neutral bias. Despite revising down the CPI forecasts, RBI stayed vigilant on any upside risks to inflation. It noted, “Although recent food inflation prints have surprised on the downside and prices of petroleum products have softened considerably, it is important to monitor their evolution closely and allow heightened short-term uncertainties to be resolved by incoming data.”

Nonetheless, the central bank leaves the door open for a rate hike. Governor Urjit Patel added in the media briefing that “the monetary policy committee might take "commensurate action" if upside risks to inflation noted by the central bank do not materialize, the report added.