Indian rupee remains vulnerable to rebound in oil prices, caution ahead in near future: Commerzbank

The Indian rupee remains vulnerable to a rebound in oil prices and is expected to face caution in the near-term after losing 1.9 percent vs the USD so far this year compared to the average gain of 1 percent among its peers, according to the latest research report from Commerzbank.

The minutes of the February policy meeting released last Thursday showed that most policy makers have shifted to a pro-growth bias. The Reserve Bank of India (RBI) surprised with a 25bp cut to 6.25 percent at the last policy meeting.

Four of the six members voted for a rate cut with the two dissenters voting to leave rates unchanged. The consensus was that the headline inflation is projected to trend downwards for the year ahead and most had voted to cut rates to cushion the impact of an expected slowdown in the global economy.

The dissenters who are notable hawks remained wary of the elevated core inflation and argued for further evidence before lowering rates. All members however voted to shift the bias to neutral from "calibrated tightening".

Importantly, the minutes also reaffirmed Governor Shaktikanta Das’ dovish policy bias. It was his first policy meeting and he noted, "The neutral stance will provide flexibility and the room to address challenges to sustained growth of the Indian economy over the coming months, as long as the inflation outlook remains benign."

"Looking ahead, we expect at least another 25 basis points rate cut this year and this could come as early as the next meeting in April. It will be a good timing for the government as the federal election is expected in April-May," the report added.