Reserve Bank of India likely to hike interest rate by 25 basis points in December

The Indian rupee, last week, saw some rare good news as it appreciated against the USD for the first time in seven weeks. Last week, the USD/INR pair eased to the 73.60 level, underpinned by the fall in oil prices. Meanwhile the latest consumer price inflation data for the month of September was also encouraging. It continued to stay low at 3.8 percent, owing to low food prices that rose just above 1 percent. Expectations of a normal month should continue to keep food prices down, noted Commerzbank in a research report.

Indian core inflation also moderated in September. This is a welcome news for the Reserve Bank of India. In the central bank’s policy meeting held earlier this month, the RBI kept the interest rates on hold at 6.5 percent and shifted to a hawkish bias by hinting at a “calibrated tightening” stance.

“We still look for a 25bp hike at the December meeting to 6.75%. For USD-INR, there may be some reprieve near term with good support seen above 72.00. The key drivers will remain oil and the USD”, added Commerzbank.