RBI's monetary policy impact on Rupee - Geofin Comtrade

By Mr. Hemal Doshi, Chief Currency Strategist, Geofin Comtrade Ltd

RBI as per expectation kept the repo rate and reverse repo rate unchanged at 8% and 7% respectively. CRR was also kept unchanged at 4%.RBI left rate unchanged as it feels that there is still some uncertainty about the evolution of base effects in inflation, the strength of the on-going disinflationary impulses, the pace of change of the public's inflationary expectations, as well as the success of the government's efforts to hit deficit targets.

RBI Governor said that change in monetary policy stance at the current juncture is very premature. However, if the current inflation momentum and changes in inflationary expectations continue, and fiscal developments are encouraging, a change in the monetary policy stance is likely early next year.

On the inflation front RBI revised down its CPI forecast to 6% for March 2015.Risk to the January CPI target of 6% seems evenly balanced which is revised down from its earlier hawkish tone in the previous policy statement.

On the overall RBI has toned down its hawkish tone in this policy and paved the way for rate cuts in future but it would want more clarity on the evolution of the base effect in inflation.

The current policy stance is favorable for rupee. In the near term rupee is expected to trade in a range of 61.60 to 62.30 with a positive bias.

Technically critical support level 62.20/30 is holding well and as far we don't break that level we can expect rupee to trade with a positive bias towards 61.60 and then towards 61.20/30 levels.

Source : Equity Bulls

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