RBI measures alone won’t do much for mkts or economy

India took a handful of measures to prop up the embattled rupee on Monday, including increasing the limit on foreign investment in government bonds by $5 billion to $20 billion, the RBI said.

Following are the expert comments on the RBI’s measure to arrest the rupee’s fall

JONATHAN CAVENAGH, SENIOR FOREX STRATEGIST, WESTPAC, SINGAPORE

“Well not the ‘shock and awe’ the market was looking for but we shall see what else gets announced. Not surprised to see USD/INR higher.

“Until they address longer term structural issues around capital flows and competition in the domestic retail sector which can help bring down inflation pressures, I think market will be left disappointed.”

M. NATARAJAN, HEAD OF TREASURY, BANK OF NOVA SCOTIA, MUMBAI

“The market was expecting a slew of measures. The measures announced now won’t have any direct material bearing on the rupee. Unless the RBI comes in with more measures, the rupee will fall back to the 57-58 to a dollar levels.”

RUPA REGE NITSURE, CHIEF ECONOMIST, BANK OF BARODA, MUMBAI

“These measures are okay to improve the sentiment in the short term only. These steps will help improve the depth in the government bonds market to some extent, it is a gradual step to more easing. However, investors were looking for introduction of long pending structural reforms, and unless that happens, rupee will not recover on a sustainable basis. But the positive from these measures may linger for a longer time for bonds.”

ABHEEK BARUA, CHIEF ECONOMIST, HDFC BANK

“These measures, if they are the complete set of measures, are tame, and disappointing compared to the market expectations. The market was expecting hefty inflows through some millennium deposit scheme, or so, but these measures alone won’t do much.

“Global factors are likely to take over, and negative momentum may return and the rupee may breach 57 to a dollar and beyond. Will wait for the rest of the day, to see if more measures are coming.”

RADHIKA RAO, ECONOMIST, FORECAST

“Knee-jerk reaction has seen the rupee and stocks pare early gains. The changes announced are positive and will further deepen the domestic bond markets.

“Markets, however, will be disappointed due to the limited boost to fund inflows from these measures and consequently of little immediate help to the local currency.”

BACKGROUND

The rupee posted its worst weekly fall in nine months last week, having slumped to a record low of 57.32 against the U.S. dollar on Friday, hurt by dollar demand from oil firms and gold importers as well the broad risk-off sentiment.

The Reserve Bank of India left interest rates unchanged last week, defying widespread expectations for a rate cut as it warned that doing so could worsen inflation, disappointing markets.

Economy has been slowing sharply due to a combination of factors such as high borrowing costs, government inaction on key policies and sluggish global environment.
Standard & Poor’s has said that India could become the first of the so-called BRIC economies to lose its investment-grade status, less than two months after cutting its rating outlook for the country.

Industrial output rose just 0.1 percent in April, lower than expectations in a Reuters poll for a 1.7 percent increase. Output fell in March from a year earlier by 3.5 percent.

Economic growth slowed to 5.3 percent in the March quarter, its weakest pace in nine years and sharply off 9.2 percent rise in the year-earlier period.

Price pressures remain high with the wholesale price inflation accelerating to 7.55 percent in May from a year earlier, driven by double-digit rises in food and fuel prices.

(curtsey : first post)

Rupesh Yatesh Dalal
Head Research Department


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