RBI unlikely to hike repo rate in October: Study
What's the story
Weakness in the rupee does not offer a sufficient alibi for a rate hike and the Reserve Bank may go for a status quo at the policy review next month, a Japanese brokerage said today. "Because of the RBI's inflation-targeting mandate, currency weakness in itself may not provide a sufficiently strong argument for rate hikes," Nomura said in a report. Here's more.
CPI inflation
CPI inflation moderates to 3.7% from 4.2% in July
Nomura said August inflation data release also surprised on the downside, with CPI inflation moderating to 3.7% from 4.2% in July. The economists gave a 60% probability for RBI staying on hold, they said, adding that "one cannot rule out" a hike on currency weakness and higher oil prices. The markets have priced in tightening as well, but it's unlikely to materialize, Nomura said.
Rupee in trouble
Troubles for rupee largely driven by global factors: Report
Unlike in 2013 round of rupee depreciation, which was driven by "idiosyncratic factors", the troubles for the rupee are driven largely by global factors in the current round, the report said. "With currency weakness largely driven by global factors and the real rate cushion already quite high in India, monetary tightening is not necessarily an effective instrument for limiting currency depreciation," it added.
Rupee vs USD
Rupee has shed over 12% this year against USD
It can be noted that the rupee has shed over 12% this year against the dollar to be one of the weakest currencies. Simultaneously, crude oil prices are also shooting up, only aggravating the pain. The RBI, which has been given the target to get inflation down to 4% over the medium term, has hiked rates twice this year by a cumulative 0.50%.