INSUBCONTINENT EXCLUSIVE:
Mumbai: Investors have increased bets that the Reserve Bank of India (RBI) will need to raise interest rates at least two more times this
year to shore up the battered rupee after previous efforts to defend the currency failed to sway markets.The government's latest measures
to support the rupee announced last week were particularly underwhelming for market participants who have since increased bearish
positioning on the currency.At the same time, the failure to stem the rupee's slide using central bank intervention and other means over
the past month has shifted investor focus to the need for interest rate hikes to do the job
RBI rate hike to pricing a fourth.Rate hikes "will be far more effective to bring down the premium investors are demanding from India",
said Jahangir Aziz, head of emerging market economics research at JP Morgan, who now expects two more hikes instead of one.The rupee has
been punished for the country's widening trade gap and swept into the broader emerging market turmoil caused by rising US interest rates
and an escalating US-China trade conflict
It is Asia's worst performing currency this year.Heavy central bank intervention has not meaningfully slowed the weakening trend and
administrative steps announced by the government late last week to reduce domestic dollar demand were met with more rupee selling.Most of
the money market repricing has come on the back of a slowdown in the RBI's currency interventions in recent months.Data shows the RBI
spent $6.2 billion defending the rupee in June
This eased to $1.8 billion in July when markets stabilised, and is estimated to have remained around $2 billion in August despite renewed
market volatility.Traders believe intervention picked up in September as the RBI tried to protect the rupee from slipping past the 73 level
The rupee touched a record low of 72.99 on Tuesday, some 14.5 per cent lower year-to-date.Since April, the RBI is believed to have spent
$20-25 billion to defend the rupee, yet the currency has continued to weaken."The RBI needs to be more tactical in intervening," said A
Prasanna, chief economist at ICICI Securities Primary Dealership in Mumbai, who also expects 50 basis points of hikes by December.Mr
Prasanna warned, however, that taking the foot off the pedal completely could backfire as depreciation expectations could become
self-fulfilling.A senior government official early last week said a rate hike might be on the cards, in a radical change of tack from
government officials who previously complained about RBI hikes.The RBI and finance minister's office did not comment for this
story.UnderwhelmingOver the past month, the three-month overnight indexed swap rate has risen 50 basis to 7 per cent, suggesting markets are
pricing in a total 50 basis points increase in RBI rates by December.This week alone, it has risen five basis points, implying pricing for a
25 basis point hike has increased by 20 per cent, after the government's latest steps to reduce a local scramble for dollars failed to
stop the rupee's decline.On Friday, Finance Minister Arun Jaitley said India would cut "non-necessary" imports, ease overseas dollar
borrowing restrictions for manufacturers and relax rules around banks raising masala bonds, or rupee-denominated overseas
bonds.Disappointing investors was the absence of an announcement about Non-Resident India (NRI) bonds, which would tap into the savings of
the wealthy Indian diaspora, a measure taken during currency crises in 1998, 2000 and 2013 with good results.The one-month non-deliverable
forward rupee rate rose as high as 73.398 to the dollar on Tuesday, more than half a percent weaker than the onshore spot rate
That compares with an average spread of 30 basis points in September, 26 in August and 16 in July.The widening spread indicates an
increasingly bearish outlook for the rupee."Investors may start pricing in more aggressive tightening in India after recent measures failed
