The RBI decision comes amid still-elevated inflation and economic growth that’s relatively stable but forecast to slow. Concern over a potential global banking crisis has eased but not gone away, while a rally in oil prices suggests further price pressures.
India’s offshore swap curve beyond April and up to the nine-month segment is very flat, which points to market expectations for peaking of the policy rate after a hike in April, said Jennifer Kusuma, a senior Asia rates strategist at Australia & New Zealand Banking Group Ltd. in Singapore. Any rate-cut expectations beyond this point appear to be minimal, she said.
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The RBI’s liquidity management has become more important going into the last phase of its rate-hike cycle, according to IDFC First Bank Ltd.
Treasury yields dropped last month as traders started to bet the Federal Reserve will cut rates this year as growth slows. This has widened India’s bond yield premium over the US, making the rupee more attractive as a carry target. A rate hike this week by the RBI would further burnish its appeal.
India’s currency will appreciate to 79 per dollar by the end of the fiscal year in March 2024, stronger than the earlier prediction of 82, UBS Group AG said this week in a research note.