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2 Feb 2015
RBI to cut rates, but not this week – JPM
FXStreet (Barcelona) - Analysts at JP Morgan comment that RBI’s intervention in USD/INR continues but the central bank might keep rates on hold in its meeting ahead, and only cut rates post the budget to be released at February-end.
Key Quotes
“Rupee is the top performing EM currency YTD, despite significant intervention by RBI, as high carry continues to bring in very large inflows.”
“We estimate that RBI bought in excess of $12bn in January at all various levels. Despite this large amount of intervention USD-INR drifted lower to 61.50. This suggests that there has been a sizeable amount of speculative inflow outside of portfolio flows in debt (+$3.1bn) and equity ($1.7bn) in this period.”
“We maintain that a shift to a monetary easing cycle does not imply a shift in RBI’s FX policy targeting INR trend depreciation in line with REER, such that INR carry trades require non-USD funding in a strong dollar environment - we are short SGD/INR.”
“A rate cut in the policy meeting next week is not our base case, but we expect RBI to deliver soon after the budget scheduled in February end.”
Key Quotes
“Rupee is the top performing EM currency YTD, despite significant intervention by RBI, as high carry continues to bring in very large inflows.”
“We estimate that RBI bought in excess of $12bn in January at all various levels. Despite this large amount of intervention USD-INR drifted lower to 61.50. This suggests that there has been a sizeable amount of speculative inflow outside of portfolio flows in debt (+$3.1bn) and equity ($1.7bn) in this period.”
“We maintain that a shift to a monetary easing cycle does not imply a shift in RBI’s FX policy targeting INR trend depreciation in line with REER, such that INR carry trades require non-USD funding in a strong dollar environment - we are short SGD/INR.”
“A rate cut in the policy meeting next week is not our base case, but we expect RBI to deliver soon after the budget scheduled in February end.”