Post Federal Reserve rate cut of 50 basis points at 4.75%, economists see India as attractive destination for investments. The stock market has already crossed the crucial 16,000 mark on Wednesday following the Fed announcement.
The analysts expect the rupee to appreciate further. However, the economists don’t believe that the RBI will take any stringent measure when it reviews the annual monetary policy on completion of six months in October. FE spoke to a few bank economists and bank treasury heads to take a stock of the situation.
Dr Rupa Rege Nitsure, chief economist, Bank of Baroda, said, ?The Fed move will certainly attract more inflows to India as it is one of the emerging market economies (EME). I do believe that it will pose a new challenge before the RBI as there will be too much volatility into the foreign exchange sector of the country.” As far as our domestic monetary policy was concerned, it will not have much impact, said Nitsure.
She hoped that the RBI will go by domestic imperatives when it reviews the annual monetary policy on completion of six months next month. ?I think that the market will be determined by domestic inflationary outlook at that point of time and to the extent of growth of M3 (broad money).? Inflation figures have come down. Also, it will have upward pressure on the Indian currency thanks to the widening of the interest rate differentials between the USA and India, said Nitsure.
Mohan Shenoi, treasurer, Kotak Mahindra Bank, does not expect the RBI to bring about any major changes in policy during the first half of the year in October. Shenoi was of the view that domestic compulsions such as high oil prices and consumer price index (CPI) will be crucial factors before the RBI. Besides, money supply in the system is much higher than the targeted level.