JONATHAN CAVENAGH,
SENIOR FX STRATEGIST, INSTITUTIONAL FX SALES, ASIA, AT WESTPAC INSTITUTIONAL BANK, SINGAPORE
?It?s very close to expectations so wouldn?t expect a great deal of market impact. RBI still may tighten policy further to soften inflation at the expense of growth. So I still prefer to steer clear of INR in the short term, even if it has been an underperformer.?
SUJAN HAJRA,
CHIEF ECONOMIST, ANAND RATHI SECURITIES, MUMBAI
?With inflation over 9% and growth above 8%, the current situation indicates that the central bank will most likely hike rates by 25 basis points on September 16. Any turn in monetary policy after that will be decided based on actual trajectory of growth and inflation.?
RADHIKA RAO,
ECONOMIST, FORECAST, SINGAPORE
?Pass-through from higher diesel/LPG prices was not as large as anticipated in July WPI print and tracked the contained fuel indices in the weekly WPI releases. Nonetheless confluence of headline WPI holding above 9 percent, strong industrial production growth and resilient service indicators suggests that growth has not taken as much as a hit as feared and thereby will prompt RBI to retain its hawkish bias and we expect end-year repo rate at 8.5%. Eye on external uncertainties are warranted in the interim. There are indeed risks that July release could be revised higher in the coming months.?
MARKET REACTION
n The benchmark 7.80% 2021 bond yield fell 1 basis point after the data to 8.32%.
n The 30-share main share index was unchanged after the data.
n The 5-year overnight indexed swap rates was steady at 6.91% and 1-year was unchanged at 7.80%, dealers said.
n The partially convertible rupee was little changed at 45.2400/2450 per dollar.
background
n The Reserve Bank of India has raised rates 11 times since March 2010 to combat high inflation which quickened to 9.44 percent in June 2011.
n India?s industrial output grew 8.8% in June and expanded above forecasts helped by strong capital goods production, reinforcing the case for a rate hike at RBI?s mid-quarter review of monetary policy in mid September.
n Food inflation accelerated to 9.9% in end-July, the highest since mid-March, suggesting the central bank would continue monetary tightening despite uncertainty over the global slowdown.
n RBI is scheduled to meet on September 16 for its next
policy review.
