Economists at Credit Suisse expect no RBI policy change. In their view, the Indian rupee will remain sensitive to oil prices, leading to a higher USD/INR.
India’s trade balance is negative again
“For the Reserve Bank of India (RBI) meeting, we expect the majority of the MPC will vote to keep the current stance accommodative and to leave policy rates unchanged. However, hawkish MPC member Jayanth Rama Varma will likely dissent again. If he is joined by any other MPC members, Indian markets could start worrying more about RBI tightening. A second hawkish dissenting vote could put upward pressure on USD/INR.”
“In addition to rising domestic demand for goods, the prospect of high oil prices would also lead to higher nominal trade deficits. With oil prices already well above 2019 levels of $55-65 per barrel, India’s trade balance looks likely be more negative in 2021.”
“Since the RBI shows clear preference for rupee weakness, (and a hawkish RBI could also result in higher USDINR), we think the rupee has scope to weaken towards 75.00 in the near-term.”
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