Rate cut won’t affect rupee much.
India’s central bank
Reserve Bank of India
(RBI), on Tuesday
reduced its repo rate by 25 basis points to 7.5 per cent and reverse
repo rate at 6.5 per cent, a widely expected move that could result in
further monetary easing.
“Growth has decelerated significantly, even as inflation
remains at a level which is not conducive for sustained economic
growth,” RBI said in a policy note yesterday. “On the domestic
front, the key macroeconomic priorities are to raise the growth rate,
restrain inflation pressures and mitigate the vulnerability of the
RBI’s policy announcement, was in line with market
expectations, bankers and analysts say.
“As for the NRIs, the tight liquidity conditions in India and
the March financial year end will keep the deposit rates high as Indian
banks look to mobilise large deposits before their year end. This,
coupled with the weak
, make investing in NRE deposits
attractive,” Rohit Walia , Executive Vice Chairman &
Capital and Bank Sarasin-Alpen, told Gulf News.
“As for the equity markets, some correction is in progress and
we would look at this as an opportunity to slowly build exposures to
bluechip stocks. Over the medium term, as global uncertainties settle,
Indian equities should perform better than some of the other emerging
The move, might not have a major impact on the rupee-dollar rate,
Sudhir Kumar Shetty,
Chief Operating Officer
of UAE Exchange
Centre, said, “I do not think this slight change in interest rate
affecting the rupee rate. If anything, only a demand-supply mismatch in
the market could affect the exchange rate of rupee. Besides, the market
has already factored this in as it was widely expected.”
Although there has been notable softening of non-food manufactured
products inflation, food inflation remains high, driving a wedge between
wholesale price and consumer price inflation, and is exacerbating the
challenge for monetary management in anchoring inflationary
expectations, RBI says.
Abheek Barua, Chief Economist, HDFC Bank, said,
“Notwithstanding moderation in core inflation risks remain from
sectoral demand-supply mismatches and correction in administered prices
as well as their second round effects.
“Elevated food prices and their role in keeping CPI inflation
firm also a cause for Concern,” he said.
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