30 July 2018
India: Market stability isn’t enough for central bank to pause tightening

Will the Indian central bank take comfort in the current market stability, and not disturb the poise? We don’t think so. The RBI tightening cycle has just begun and has a leg to run further, even beyond the meeting next week 

We share the consensus view that the Indian central bank will tighten monetary policy by another 25bp next week which may lend some more stability to the Indian rupee. The excessive currency weakness was the trigger for the previous rate hike in June, though the recent currency stability provides no reasons for the central bank to pause tightening.

But key headwinds to currency appreciation are unlikely to disappear and include high inflation, widening current account and fiscal deficit and rising political uncertainty in the run-up to general elections in early 2019.

We maintain our forecast of USD/INR rate trading toward 71.5 by the end of the year. (spot 68.6)  

Reading time around 55 seconds

Good MornING Asia - 30 July 2018

Will the Indian central bank take comfort in the current market stability, and not disturb the poise? We don’t think so. The RBI tightening cycle has just begun and has a leg to run further, even beyond the meeting next week 

In this bundle