INSUBCONTINENT EXCLUSIVE:
-- whose recent debt defaults rocked financial markets in India and sparked fears of a contagion -- as well as on debt-focused mutual funds
tightening, with most economists expecting a 25 basis-points hike on Friday
The swap market is pricing in at least 100 basis points of rate hikes in the coming 12 months.
The latest turmoil comes on top of a cash
crunch in the banking system and global trade tensions that are weighing on the growth outlook
rising oil prices.
While headline inflation has slowed to 3.7 percent from a year ago, a sharp 10 percent-plus jump in crude oil prices
issues which are beyond the traditional growth-inflation trade off," said Samiran Chakraborty, chief India economist at Citigroup, who is
assigning a 70 percent chance of a rate hike this week
But should the panel opt for a pause favoring financial stability, it risks a sharp knee-jerk reaction in the currency markets, he said.
The
rupee has dropped more than 12 percent against the dollar to a record low of 73.4162 on Wednesday, making it the worst performer among major
Asian currencies.
The RBI has already raised rates twice since June to the highest level in two years and any further tightening will
pressure borrowing costs for companies
Average yields on three-year rupee bonds of AAA-rated Indian companies have climbed 127 basis points this year, headed for the steepest
yearly gain in eight, according to data compiled by Bloomberg.
More PainFor borrowers and money managers, more rate increases mean more
Prabal Banerjee, group finance director at conglomerate Bajaj Group.
Signs of that are evident
He has put founders and chief executives of private sector banks under the sword as he attempts to clean up the banking system, which has
inflation, economists also see the possibility of the central bank changing its stance to hawkish from neutral.
The RBI has maintained a
Under a neutral stance, it retains flexibility where it can raise as well as cut rates depending upon how strong or weak economic data
He expects the RBI to raise rates this week as core inflation has been sticky and the rupee has been under pressure.
