The Reserve Bank of India in its fourth bi-monthly policy this fiscal changed the policy stance to "calibrated tightening" from "neutral", while affirming its commitment to achieve the medium-term objectives to contain price rise.
The MPC, in its report, has said headline inflation is expected to accelerate to 4.5 per cent by March 2019 quarter with upside risks. "Against this backdrop, the impact of cost-push factors should be limited and transient and, as the output gap again turns negative, underlying inflation should converge back towards 4.5 per cent". So, will we see them reversing the latest hike - or, will we see something akin to the RBI announcing a hike in rates?
The key question for markets ahead of the central bank meeting this Friday is whether it will overlook the rupee's weakness?
Investors remained concerned over sustained foreign capital outflows and soaring crude oil prices. Firstly, it ascertained that inflation was in a manageable range given the recent decline in food prices. The decision was predicted by just nine of 49 economists in a Bloomberg survey, with the rest seeing a 25 basis-point increase.
The panel's decision comes at a hard time for Indian policy-makers.
Brokers said weakness was seen in most Asian markets as high USA yield and good economic data led to fear that investors would move to the U.S., dampened trading sentiments here.
The rupee slump has widened India's current account deficit, when the value of imports exceeds that of exports.
And to help spur the domestic economy, Garg said the RBI is likely to ramp up liquidity injections through open market operations (OMO). Rising crude oil prices have wreaked havoc on India's economy because it's one of the world's largest importers.
Though the currency had regained its composure over the past few trading sessions because of the measures taken by the Union government, it came under fresh pressure on Wednesday, with crude oil providing the trigger.
The Asian currency positioning poll is focused on what analysts and fund managers believe are the current market positions in nine Asian emerging market currencies: the Chinese yuan, South Korean won, Singaporedollar, Indonesian rupiah, Taiwan dollar, Indianrupee, Philippine peso, Malaysian ringgit and the Thai baht.
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