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15 May 2013
Forex Flash: RBI may have more room for monetary easing – TD Securities
FXstreet.com (Barcelona) - The USD/INR has risen quite sharply over the last 10 trading days, and some analysts believe that based on recent inflation readings from India which have come in below estimates, the pair could set up for additional gains going forward as the RBI now has more room for additional easing.
According to Cristian Maggio, Senior Emerging Markets Strategist at TD Securities, “WPI inflation fell from 5.96% in March to 4.89% Y/Y in April, mostly driven by food, as well as energy, non-metallic mineral products, metals and alloys. The print was sharply below the consensus expectations for 5.45% and our 5.40% forecast. Inflation has therefore dropped in the lower range of the RBI’s 4-6% tolerance band, which gives more room for the RBI to continue monetary easing."
Furthermore he added, “Inflation has been declining in a non-linear way since September 2012, and recently this trend has intensified, allowing the RBI to ease rates by 50bp in 2013. Governor Subbarao recently highlighted that the room for Monetary is shrinking, however the unexpected fall of WPI well within the RBI’s tolerance band may support further cuts."
To conclude he commented, “Economic growth is not there yet to support rupee valuations. However, with the recession phase approaching its end and the rebound supported by monetary easing, we see the possibility of better Sensex performance going forward, to which USD/INR is strongly correlated. Based on our revised forecasts, we expect the pair at 53.9 in Q2, 53.8 in Q3 and 54.0 in Q4."
According to Cristian Maggio, Senior Emerging Markets Strategist at TD Securities, “WPI inflation fell from 5.96% in March to 4.89% Y/Y in April, mostly driven by food, as well as energy, non-metallic mineral products, metals and alloys. The print was sharply below the consensus expectations for 5.45% and our 5.40% forecast. Inflation has therefore dropped in the lower range of the RBI’s 4-6% tolerance band, which gives more room for the RBI to continue monetary easing."
Furthermore he added, “Inflation has been declining in a non-linear way since September 2012, and recently this trend has intensified, allowing the RBI to ease rates by 50bp in 2013. Governor Subbarao recently highlighted that the room for Monetary is shrinking, however the unexpected fall of WPI well within the RBI’s tolerance band may support further cuts."
To conclude he commented, “Economic growth is not there yet to support rupee valuations. However, with the recession phase approaching its end and the rebound supported by monetary easing, we see the possibility of better Sensex performance going forward, to which USD/INR is strongly correlated. Based on our revised forecasts, we expect the pair at 53.9 in Q2, 53.8 in Q3 and 54.0 in Q4."