INSUBCONTINENT EXCLUSIVE:
Rupee, the worst-performing major Asian currency, is likely of concern to policymakers, said analysts.BENGALURU: The Reserve Bank of India
is likely to raise interest rates in early October, despite relatively tame inflation, to prop up a retreating rupee, according to a Reuters
poll of economists who also trimmed their near-term growth forecasts
In an abrupt change from the last survey conducted two months ago, which predicted rates would stay on hold until this quarter next year,
two-thirds of 61 economists polled September 19-25 said the RBI would lift the repo rate at least once by year-end.Slightly over half said
RBI Governor Urjit Patel and the Monetary Policy Committee would deliver a 25-basis-point rise to 6.75 per cent at the October 5 policy
meeting, with one economist calling for a 50-basis-point rise.The predicted rate hike would be the RBI's third this year, having lifted
borrowing costs in June and August
The US Federal Reserve is forecast to raise rates this week - its third this year - according a separate Reuters poll.For many analysts, the
retreating rupee, which has tumbled nearly 15 per cent since the start of the year and is the worst-performing major Asian currency, is
likely of concern to policymakers.On Tuesday, the rupee, hit recently by growing credit concerns engulfing non-banking financial companies,
was trading at 72.68 to the dollar.The finance ministry also wants RBI to boost liquidity."For the RBI, I think it becomes necessary to
provide a policy response
The question was only of timing," said Radhika Rao, economist at DBS in Singapore."Some would say it (rate hike) could have come sooner it
probably would have been a bit more beneficial
But better now than never."If the RBI does raise rates, it would be the latest in a series of emerging market central banks that have been
pressured into tightening policy in response to a tumbling currency.Fortunately for the RBI, the economy is doing well
The economy is forecast to expand by an annual rate of more than 7 per cent every quarter for the next two years, although slower than the
surprise 8.2 per cent rate clocked last quarter.This means that India will remain the world's fastest growing major economy, but
economists have chopped forecasts somewhat for coming quarters."Although the high growth rate in Q2 might be partly attributed to favourable
base effects the underlying dynamics of the Indian economy shows that virtually all high-frequency data is flashing green," said Hugo
Erken, senior economist at Rabobank.Prices of crude oil - the country's biggest import - have surged by over 20 per cent this year
That in turn has swollen the current account gap to 1.9 per cent of GDP, swinging to deficit from a small surplus of 0.7 per cent a year
ago.That gap is forecast to widen further to 2.8 per cent of GDP by the fiscal year ending in March 2019, before easing slightly to 2.5 per
cent in 2019-20.Just over half of 49 respondents who answered an additional question said the biggest economic risk over the coming year was
higher fuel prices.The escalating US-China trade war has not had a major impact on the country so far but has spurred on a broad selloff in
emerging market assets since the beginning of this year.The sharp fall in the rupee has not stirred much worry about inflation, however,
which was just under 3.7 per cent in August, slightly below the 4 per cent where the RBI prefers it to be.It is expected to average 4.1 per
cent this quarter and next, but rise to 5 per cent by the middle of 2019 - significantly lower than the predictions in the last poll two
months ago.Economists were almost evenly split on whether a weaker rupee posed the biggest upside risk to inflation, with 26 of 51
respondents saying it was.But even if the RBI raises rates on October 5, it will still struggle to keep up with the Fed, which is expected
to keep tightening policy well into next year."The RBI will have to do more, though that looks unlikely on the grounds of on-target
for the headline, this story has not been edited by TheIndianSubcontinent staff and is published from a syndicated feed.)
