Currency Perspective - Inflation concerns prompt RBI to hold rates: Angel Broking

Views of Mr. Prathamesh Mallya (Chief Analyst - Non-Agri Commodities & Currencies, Angel Commodities Broking):

"In a bid to drain excess liquidity from the system, the Reserve Bank of India in its April'17 policy meet kept the borrowing rates unchanged at 6.25 percent, however, hiked reverse repo rate by 25 basis points to 6 percent. This narrow gap between both the mentioned above rates will encourage banks to park their funds with the RBI who has already absorbed Rs. 3,141 billion (March'17) via Market Stabilization Scheme. Since this move, the Indian Rupee spot has been appreciating and is currently trading at 64.59 levels.

As per RBI projections, the inflation rate is expected to rise at 4.5 percent in the first half of 2017-18 from the current 3.65 percent on account of rising probability of an El Niño event which could boost food inflation along with implementation of 7thPay Commission and GST bill. With respect to economic growth, gross value added growth is projected to strengthen to 7.4 percent in 2017-18 from previous year's 6.7 percent primarily due to - rebound in consumer spending and credit growth, proposals in the Union Budget, roll-out of GST bill and the upsurge in IPO's which augurs well for investment and growth.

In the near term, USDINR spot is likely to appreciate owing to possible clearance of GST Bill by Rajya Sabha which could boost foreign inflows. Moreover, uncertainty with respect to Trump's fiscal policies will keep the American currency pressurized in turn supporting the rupee."

Source : Equity Bulls

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